The European chemical industry is complaining and sounding the alarm on the health and future of the sector… again. Cefic, the main industry association, says that “the warning lights are no longer blinking — they are blazing”. It also says that “we risk watching an entire industrial backbone […] slowly hollow out before our eyes”.
This does NOT sound good… but is it true? The European chemical industry does have a history of exaggerating these things 👇
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We decided to check out the numbers.
The lights are flickering, not blazing
Let’s start by looking at the sales — and do so by looking at the chemical trade organisation Cefic’s own graph.
As you can see, developments over the last decade have been quite stable (except the inflation year of 2022, when the industry had a blast). Two years ago, when the industry really started sounding the alarm, total sales were down €5 billion from the year before. That’s a 0.7% reduction. However, compared to 2019 — prior to the pandemic — sales were up €92 billion. That’s a not-too-shabby 17% increase.
What about last year? Cefic has published figures for the first three quarters, showing a 2.3% decline in sales compared to the year before. Those figures aren’t good — but they don’t signal an imminent collapse of the industry either.
As for chemical plants closing down, announced closures will cut around 20,000 jobs in Europe, according to a recent Cefic-commissioned report. This is, of course, a major concern for the workers who will lose their livelihoods. However, it must be put into perspective. They represent 1.7% of the total workforce of 1.2 million in the massive European chemical industry. For reference, the European car industry — another important industry sector — is facing more than 100,000 job cuts.
High energy prices + old assets make European petrochemicals a dull boy
The same report finds that production capacity will be cut by 9%. This is a grim number, especially as capital investment in capacity expansions is drying up. However, capital spending on existing assets remains quite stable.
But here is the interesting part — not all segments are hurting equally. The big drop in production capacity mainly affects petrochemicals, which are basic chemicals used as key building blocks in the production of other chemical products. Petrochemicals account for almost half of the decline in production.
There are two main reasons for this sharp decline. One: energy prices account for three-quarters of petrochemical production costs — and they have increased rapidly in Europe. In the last few years, the EU has been replacing Russian gas with more expensive energy sources, for example, liquefied natural gas (LNG).
Two: With an average age of 45 years, Europe has very old steam crackers, which serve as the industrial heart of the petrochemical sector. In fact, no new crackers have been built in Europe in the last 30 years (the possible exception being INEOS, which recently shipped a steam cracker all the way from Thailand to Belgium).
Meanwhile, in recent years, companies in China and the Middle East have made massive investments in building mega-sites to efficiently produce vast amounts of petrochemicals. This has left the European petrochemical sector unable to compete on the global market, especially amid the current overcapacity and weak demand.
The hidden truth behind the numbers
So, in summary, how is the European chemical industry doing at the moment? Are the warning lights blazing?
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Well, the most recent sales numbers show some decline — but by zooming out a bit, it’s clear that sales are overall quite stable. The big problem is rising energy costs and old assets, which have particularly hurt petrochemicals. Without that segment, the numbers would tell a different story. The specialty chemicals segment — high-value chemicals for specific applications — still looks pretty solid.
However, although the European chemical industry likes to blame anyone but itself for its predicament, there is a structural cause it rarely discusses — a longstanding, faulty business strategy that prioritises short-term financial gains instead of long-term competitiveness.
Read more about this in Part 2.
