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Chemical Industry Briefing: Building on strengths and seizing opportunities

A positive outlook for a European chemicals industry in flux

High energy costs, excessive regulation and weak demand, particularly in the European domestic market, are familiar complaints in Europe’s chemicals industry. But that is only part of the picture. At the same time, the industry attracts over 30 billion euros in foreign investments and sees around 40,000 new patents filed annually, demonstrating strong global appeal and innovation potential. So what does this all add up to? We break it down into three key reasons and six industry segments, highlighting why there is cause for confidence and optimism in Europe’s chemical industry – despite and while facing the current global disruptions and challenges.

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The current economic climate

Not only is the chemical industry a vital part of our day-to-day lives; it also generates upwards of 862 billion euros in revenue¹, making Europe the second largest regional market for chemicals (after China). Roughly 70% of the revenue stays in Europe, which means there is a stable local market and strong demand within Europe for high-tech, high-margin chemical products and solutions. Several medium and long-term initiatives are unfolding as well, designed to bolster Europe’s industrial base, most notably The Antwerp Declaration for a European Industrial Deal.² European chemical products are also exported to a significant extent, with high-quality, cutting-edge products worth over 220 billion euros selling on the global markets¹.

The structural context – three good reasons to be optimistic

Europe’s chemical industry is built on three key pillars:

Proven and efficient production infrastructure

Europe is known for its over 60 major chemical parks that enable quick and seamless exchange of raw materials and intermediates along the entire value change, including the efficient supply of utilities and other services. Nevertheless, chemical players must keep optimizing and adapting these services to meet the demand of the circular value chain of tomorrow.

Innovation potential

With some 40,000 new patent applications in 2023,³ Europe is leading the way in key areas of innovation, including:

Biochemicals
Chemical and mechanical recycling
Hydrogen and renewable energies
Process innovations driving efficiency gains

The close ties between European industrial companies and research institutes keep innovations focused on practical applications that meet customer demands. Europe’s rivals in the US and China are also investing considerable effort in this area, so it is vital for Europe’s chemical players to maintain focused on practical applications to maximize the commercial success of its innovation pipeline as well as secure efficiency gains (e.g., using AI).

Highly trained workforce

The European chemical industry employs around 1.2 million people, most of whom are highly trained specialists. Their knowledge of production systems, their experience serving customers and their needs, and their successful track record in turning innovative ideas into market-ready products pave the way for future success. Amid stiff competition from other industries, Europe’s chemical players need to build strong employer brands to attract top talent. This goes beyond competitive pay and benefits – it means showcasing the sector’s unique purpose as a key contributor to a more sustainable future.

An outside perspective

But how do foreign investors see the European chemical industry? The story is quite different to the one we are often told. During the past six (crisis) years, foreign investors have not only invested close to 17 billion euros to shore up their European operations; they have also spent nearly the same amount on M&A deals designed to diversify their activities. Non-EU investors have deliberately targeted European assets and expertise outside their core business, not least due to the global opportunities they see in Europe’s chemical industry.

Fig. 1 - Chemical transactions near past (2018-2024)

A critical overview of the portfolio – six strong, attractive segments

The chemical industry has a wide range of segments, each with their own success factors, products, customers, etc., and it would be too simplistic to analyze them with a one-size-fits-all approach. We have identified six segments that entail key strengths and opportunities for the future of Europe’s chemical industry and offer opportunities:

Fig. 2 - Six Key Segments

Engineered plastics such as high-end polyamide as well as PEEK, PSU and other high-tech plastics are some of the strongest examples for the performance of Europe’s chemical industry. These stand-out materials offer considerable potential for manufacturers to achieve a strong competitive edge in future-ready applications from e-mobility to aerospace.

CAS (coatings, adhesives, sealants)-related chemicals and products not only offer enormous potential for innovation; they are essential for a wide range of cutting-edge use cases in everything from aerospace and electronics to battery and photovoltaic applications. Prominent examples are pioneering resin and additive solutions for multifunctional coatings that at the same time feature outstanding processing properties.

Advanced materials such as composites, catalysts and state-of-the-art battery materials are vital for e-mobility, wind power and other future technologies, providing solutions that are both technologically feasible and cost-effective – another area in which Europe’s chemical players excel.

Knowledge chemicals are a key sub-segment of specialty chemicals. Offering a wide range of applications, they require a combination of customer focus and deep application expertise as well as chemical formulation knowledge, which has always been one of Europe’s strong points. We expect this segment to consolidate its position and remain competitive on export markets.

Segments such as personal und homecare chemicals and advanced intermediates are often overlooked, but quite important strategically. Both stand to benefit from the trend toward more resilient, regional supply chains and stable markets less sensitive to economic cycles.

In a list like this one, we should also include segments that are under pressure, for example (not forward integrated) petrochemicals; polyethylene, polypropylene and other commodity plastics with no clear differentiation; and products with high raw material and energy consumption, such as nitrogen fertilizer.

A look ahead to the chemical industry of tomorrow

In the medium to long term, we expect the chemical industry to benefit from broader changes on the social and political landscape, and the challenges that come with them, and from the shift towards more regionalization to the drive for more sustainable solutions.

As geopolitical tensions rise and trade barriers increase, chemical industry customers will prioritize regional supply chains to ensure reliable, consistent supply of critical inputs, e.g., pharmaceuticals and their intermediates, and to reduce their dependency on imports. We believe Europe’s chemical production will inevitably grow stronger as a result. The recent Draghi Report names the chemical industry as one of three key “Fields of Action”, given that chemical products account for 43% of the 204 products considered essential to Europe’s independence.⁴

Recent geopolitical events also offer new opportunities for growth. An increase in defense budgets and a focus on technological sovereignty are driving growth in so-called defense chemicals like high-energy materials, in technical materials for personal protection equipment and for example in specialized radar-absorbent coatings.

And finally, the circular economy is shifting more toward regional circular value chains instead of global trade flows in petrochemicals and critical raw materials. Here too, there is a growing emphasis on broader regional independence (e.g., in battery materials), leading to more local supply of chemical products.

The challenges

So, everything is fine? Not at all. The European chemical industry is undergoing major structural shifts – many of them long overdue. We see in the planned shutdown of naphtha steam crackers or in the news that major petrochemical and polyolefin companies are placing their European operations under strategic review. There are also real threats from high energy costs, excessive regulations and – perhaps most concerning – weak domestic demand.

Despite these challenges, Europe’s chemical industry remains a vital and trusted partner in the global economy. To maintain this position, the industry must continue to build on its core strengths – enhancing production efficiency, expanding its innovation potential and investing in its highly trained workforce. We believe the European chemical industry can reinforce its leadership position and boost global competitiveness by prioritizing these three pillars. The segments previously highlighted for their strategic advantages and growth potential will be key drivers in this progress, and Europe’s chemical industry should actively and confidently pursue their continued development.