Part one of this article series examined the claim that “warning lights are blazing” and the European chemical industry is in crisis.
This second part will explore the fact that the chemical sector, to a large extent, has itself to blame. This is due to a long-standing, flawed business strategy that prioritises short-term financial gains over long-term competitiveness.
Already in the early 2000s, author and former senior executive in the French chemical industry, Fred Aftalion, argued that the lack of long-term investment and innovation in the industry was in part because it had become subordinated to “the whims of short-term financial considerations”.
These whims have only grown with the years.
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A recent study that includes 130+ companies in the European chemicals segment found that these companies generated €322B in net profit between 2010 and 2023 and paid out three-quarters of that to shareholders. This share increased consistently over the time period, whereas capital investments declined.
But what does this business strategy mean in the real world?
European chemical sites are starved of investments
Take steam crackers as an example: the average age of Europe’s steam crackers is 45 years old. No new crackers have been built in Europe in the last 30 years. Nine crackers have been announced to be shut down in the last four years.
Meanwhile, companies in China and the Middle East have made massive investments in recent years, building mega-sites to efficiently produce vast amounts of petrochemicals. This has left Europe’s chemical industry unable to compete.
“You cannot win a Formula 1 race driving a 1980s sedan”
As Tomas Wyns, Senior Researcher at the Brussels School of Governance, puts it: “You cannot win a Formula 1 race driving a 1980s sedan, no matter how cheap the petrol is. The problem isn’t just the cost of energy; it’s the efficiency of the machine.”
The European chemical industry has actively chosen to sit comfortably in its “1980s sedan”.
Instead of investing profits into future-proofing their European sites, the chemical companies have favoured shareholder payouts. Even as late as 2022, when the European economy was hit hard by rising commodity prices, European chemical companies werebragging to their shareholders about high margins and record profits.
Stock buybacks and shareholder payouts hollow out the core business
Even today, BASF — which in October announced it would lay off another 600 workers — has a program in place to buy back €4 billion of its own shares and is set to pay at least €12 billion to its shareholders in the coming years.
You really can’t blame the workers at the company for organising protests and holding signs that read “Berliners Axed, Shareholders Flourishing” (a play on the company name).
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Big Chem spends billions on elaborate stock buyback schemes — but still asks for public funding
INEOS, the second-largest chemical company in Europe, is also playing financial games rather than investing in its core business. The company has deliberately built a business empire on debts and under-investing. But that empire is now on the verge of collapsing.
This is the state of play in Europe right now. Companies play financial games, hollow out their business and lay off workers. Then they tell policymakers the chemical industry needs state support and fewer regulations.
“The collapse is the result of deliberate choices by European chemical companies”
Cefic’s Director General, Marco Mensik, said it best: “I often compare it to a sandcastle where the water washes away underneath. You don’t see it right away, but suddenly the towers collapse. That moment has arrived”.
He’s right — but not in the way he thinks. The collapse is the result of deliberate choices by European chemical companies not to invest in a modern, competitive industry.
European companies must start thinking long-term
Throwing public money on a rusty edifice will not revitalise Europe’s chemical industry. Instead, it needs to lay out a long-term strategy for where to position itself in the future.
The smartest path is to build on Europe’s strengths and become the global leader in safer, climate-friendly chemicals. To make that happen, policymakers should introduce progressive policies — including funding for research, support for safer alternatives, comprehensive restrictions on toxic substances, and protection against cheap, hazardous imports.
At the same time, the chemical industry needs to shift from focusing on short-term profits to long-term innovation and sustainability — and stop blaming everyone but itself for its distress.
