No Sign of Recovery for Europe Chemical Industry Amid High Energy Prices, Tax
The overall message from the recent European Petrochemical Luncheon in Munich, Germany, in mid-June suggests that demand for most sectors of the petrochemical industry remains soft and there is no real sign of any recovery over the balance of the year – causing many to write off 2025. Most subsequently feel 2025 will be a rerun of 2024 and any recovery is unlikely to happen until 2026.
One source gloomily told OPIS at the luncheon event that discussions were more likely to be centered on which European petrochemical asset will be the next to shut, rather than when demand will bounce back.
And a week later, Saudi Arabia’s Sabic announced on June 24 it was shutting down its 865,00 metric tons/year ethylene Olefins 6 cracker at its Wilton, U.K. site. This can arguably be therefore seen as a clear manifestation of market sentiment and of the view that the European chemical industry does not expect any change in the medium term.
The significance of this closure lies in the fact that it unequivocally points to not just the poor current outlook Sabic, a division of Aramco, sees for the European petrochemical sector but, more crucially, also that it, at least, sees limited opportunity for any significant improvement in the sector’s fortunes.
Moreover, this closure was perhaps the least expected of the permanent closures of European petrochemical units announced in 2025.
LyondellBasell recently announced the sale of some of its polymer operations as well as the shuttering of its 680,000 mt/yr propylene oxide/styrene monomer unit at Maasvlakte, in the Netherlands. Italy’s Versalis said it will convert some of its domestic operations to a sustainable/circular economy. Dow is still deciding whether to close its No. 3 cracker at Terneuzen, also in the Netherlands, even though it is the most modern cracker at the site.
Sabic shut the Wilton cracker in 2020 to convert it to an ethane-fed one from a naphtha-fed facility and since then it has invested millions of dollars in engineering work and logistics for the cracker. Even though Sabic suspended work on the project in 2024 due to uncertain market conditions, it was expected this would continue at some future date. Its permanent closure was not foreseen and therefore has an even greater impact given the vast investment in it up till 2024.
Europe bound by higher taxation, greater regulation
The problems of low demand and low margins faced by many European petrochemicals are nothing new, as the sector’s fortunes are closely correlated to economic growth. Even if the economy recovers, there is no guarantee the fortunes of the European petrochemical sector will do likewise. And this comes as European chemical companies face costs over which it has limited control.
The parlous state of the industry stems almost exclusively from much higher energy costs and more onerous regulations than many other competitor regions, notably the Middle East, the United States and China, which enjoy lower-priced energy costs and less stringent regulations. For many industry participants it is the excessively regulated industry and higher taxes that is the crux of the problem as it results in higher energy and operating costs.
Underlining this, Sabic said the shutdown decision was the “result of a thorough analysis aimed at optimizing competitiveness and aligning with Sabic’s long term strategic priorities to ensure the company remains agile and resilient in an evolving global landscape.”
Sir Jim Ratcliffe, Ineos chairman and CEO, in an open letter to EU members of parliament was even more strident in his view as to why the European petrochemical sector is fading.
“Chemicals in Europe is facing extinction,” Ratcliffe said in the letter. “Government policies have resulted in enormously high energy prices and crippling carbon tax bills. The industry is in crisis with such huge disadvantages. Instead of investing in growth for the future, it is fighting for survival.”
“Government policies will shut all petrochemicals in Europe. The solution is to ban carbon tax, provide competitive energy for industry and incentivize growth and clean technology. We also need tariff barriers while these changes are being implemented or there will be nothing left. This is the U.S. approach, where they value industry and its high value employment and they are leaving Europe behind in their dust.”
Industry associations share gloomy outlook
The Ineos CEO received some support for his views from the Britain’s Chemical Industries Association (CIA), an U.K. industry trade association representing the sector. The association warned at the end of 2024 that future investment was at risk as companies battled rising costs and falling demand.
The CIA stated that in the period January 2021 – end 2024, U.K. chemical industry output has fallen by 37%, and its CEO Steve Elliot attributed this to the “cost of energy and the related cost and uncertainty around carbon”.
Data from European industry trade body, CEFIC, showed a similar pattern for Europe’s chemical space, reporting 11 million metric tons of capacity had closed for good between 2023 and 2024.
And there are no signs of light at the end of the tunnel. In its April 2025 Q1 2025 Chemical Trends Report, CEFIC said Europe’s cracker utilization rate of 74% is well below its long-term average and under the U.S. average since Q3 2022.
“Weak demand and declining business confidence continue to challenge the EU27 chemical industry. Additionally, gas prices remain 3.3 times higher than in the US, rendering them [Europe] uncompetitive on a global scale,” CEFIC said in the report.
The report also drew attention to the adverse impact of U.S. tariffs, which it sees as resulting in European chemical industry growth being less than 0.5% in 2025 compared with 2.5% in 2024.
It is clear that unless the European chemical sector receives some government relief from higher energy and other costs outside of its control, it will in the words of INEOS UK CEO, Stuart Collings, continue to see “announcements of closures all across Europe.”
–Reporting by Yazdi Merchant, ymerchant@opisnet.com