European Chemicals Industry Faces Crisis with 11 Million Tons of Capacity Set to Close

The European Chemical Industry Council (Cefic) recently released a report indicating that the European chemical sector is experiencing a severe oversupply situation, with 11 million tons of chemical production capacity scheduled for closure. This significant downturn impacts 21 major production facilities and is expected to continue as market fundamentals show no clear signs of improvement.

According to the report, the aromatics sector has been hit particularly hard, accounting for 41% of the total closed capacity in 2023 and 2024. This includes multiple facilities for isopropylbenzene, styrene, ethylbenzene, and toluene diisocyanate. Other affected sectors include olefins, which represent 26% of the closures, and polymers, which account for 23%.

Cefic forecasts that the situation will not improve post-2025, as global petrochemical capacity continues to rise, adding pressure on the European market. Current demand growth is sluggish, leading to an estimated global utilization rate of only 75% for key chemicals in 2023. This low level is expected to persist between 74% and 76% until 2028, unless significant market restructuring occurs or demand rebounds more robustly than anticipated.

The closure of cracking plants is also creating challenges for downstream chemical industries. Cefic emphasizes that shutting down naphtha cracking facilities is a tough decision, as they serve as a crucial link between refining and petrochemical sectors. Nearly 3 million tons of cracking capacity are set to close in the EU during 2023 and 2024, exerting immense pressure on the chemicals industry. The report indicates that the announced closures represent about 5% of Europe’s total cracking capacity.

Cefic warns that the combination of capacity closures and low utilization rates negatively impacts both industry development and decarbonization efforts. Key chemical building blocks such as ethylene, propylene, ammonia, and chlor-alkali are vital for Europe’s decarbonization strategy but have suffered greatly due to rising energy costs and weak demand.

Despite these challenges, Cefic believes there is still hope for the European chemical industry, highlighting several sub-sectors with competitive advantages. In 2023, the sector generated approximately €655 billion in sales, contributing around €165 billion in added value to the European economy. However, it urgently requires social and political support to mitigate the adverse effects of ongoing capacity closures.