In the European chemical industry, valued at 635 billion eurosa perfect storm begins to brew and sets the stage for consolidation waves. Just look at what the sector is facing: low demand, rising energy costs, dutyA stifling regulatory environment – with even stricter emissions standards planned for 2026 – and a relentless global competition.
Mounting losses in a key industry, essential to the production of everything from cars and buildings to medicines, paints and everyday household items, have made chemistry the second worst performing sector of the main European stock market index in 2025, just behind the media. Companies like IMCD NV, Symrise AG, Arkema SA and Lanxess AG having lost a quarter or more of its value.
These declines, combined with continued deterioration in margins, are intended to encourage more companies to gain agility and economies of scale. In November, paint manufacturers Akzo Nobel SA and its American counterpart Axalta Coating Systems Ltd. detailed a merger to create a company 25 billionAfter BASF SE sell its coatings business – valued at 7.7 billion euros– as part of an effort to reorient the largest European chemical producer in the face of still high energy prices.
“Many consumers are putting off purchasing durable goods such as laptops, furniture or cars, choosing instead to spend on travel, restaurants and other services,” he noted. Conrad Keijzerexecutive director of Clariant SAa Swiss specialty chemicals company whose products include catalysts and antifreeze fluids. “Combined with a challenging cost environment in Europe, this continued weakness in demand makes industry consolidation inevitable. »
In Germany, the region’s leading chemical producer, production is approaching levels not seen since the 1990s. Only during the period 2023-2024They were destined to disappear Capacity of 11 million tonnesaffecting 21 facilitiesaccording to the European Chemical Industry Council, which implies the loss of 10,000 and 20,000 jobs. Dow Inc. closes two factories in Germany and Inéosof the United Kingdom, reduces its production.
And the worst is to come, according to Dirk ElvermannCFO of BASF. “A considerable number of chemical assets in Europe are currently operating at profitability levels that are unsustainable,” he said recently on a call with analysts. All this creates an environment conducive to a profound upheaval in the sector, with possible mergers, acquisitions and restructurings on the horizon.
The proposed deal between Akzo Nobel and Axalta, as well as BASF’s sale of coatings assets, could lead other management teams to explore ways to create value through consolidations or divestitures, according to Geoff Haireanalyst UBS Group AG. In a report released this month, UBS identified Lanxess, Umicore SA and Victrex Plc like the least appreciated companies, facing possible price cuts and reductions in supply.
With approximately 31,000 companies -essentially small and medium-sized-, the chemical sector is deeply anchored in the European industrial fabric. However, as costs have risen and the regulatory framework has tightened, the region has become increasingly uncompetitive, quickly losing ground to Chinese rivals.
Over the past two decades, Europe’s share of global chemical production has been cut by more than half, from 27 at 13%. During the same period, China’s share increased from 10 to 46%transforming Europe from a chemical exporter to net importer.
In just the last five years, Chinese imports into the region more than doubledstarting from 7 to 18%according to UBS. China is also now contributing to a global oversupplywhich represents a major challenge for European producers, faced with increasingly high costs.
At the top of these costs are energy bills. Gas prices in Europe remain close double pre-pandemic levelsdue to the loss of cheap Russian gas supplies following the invasion of Ukraine, and between three to five times higher than in the United States. Added to this is the cost of strict European Union regulations aimed at reducing carbon emissions.
“We are in a deadly global competition,” he said. Stéphane Müllerhead of energy sales in Germany for the British multinational chemical company Inéos. He emphasized that only in its Cologne factory does the company pay 100 million euros annually in carbon taxesin addition to high labor costs. “These CO₂ costs do not exist in other parts of the world outside of Europe.”
The European carbon border adjustment mechanism comes into force
Next year will bring even more challenges to the sector. The European carbon border adjustment mechanism, which will come into force at the start of 2026 and which places a price on emissions associated with imported products, has largely excluded chemicals from the system. At the same time, free greenhouse gas emission permits, which mitigated the impact of the European Emissions Trading System, are gradually being phased out. Only this last measure will involve a Cost increase of 2.5% for chemical companies from next year.
These increases make it impossible for European producers to be competitive. For example, BASF estimates that it will have to purchase 1 billion euros in CO₂ permits by the end of the next decade to cover its emissions, expenses that its foreign competitors will not face.
“These are costs that we incur to manufacture in Europe; costs that we would not have if we produced the same products in China, the United States or India,” said the BASF CEO. Markus Kamiethin October. This “shows the competitive disadvantage that a well-intentioned but poorly designed emissions trading system can generate in Europe.” Some German chemical companies, including BASF and an ammonia producer SKW Stickstoffwerke Piesteritz GmbHrequire adjustments to the carbon market to level the playing field.
There are, however, some glimmers of hope. UBS’s Haire cites Germany’s infrastructure revival, the possible imposition of anti-dumping duties on imports, EU efforts to reduce carbon costs and moves by the Chinese government to reduce overcapacity as factors likely to offer much-needed respite.
Yet none of this will help medium term. The sector is expected to contract in the first quarter 2026with a slow recovery which should not 2027according to Oxford Economy. Even then, “it will remain on the current structurally low trajectory, and we expect annual growth to peak at 1.7% in 2028which is really insufficient to significantly recover the ground lost in recent years,” he said. Nico Palesheconomist within the consulting firm.
Against the backdrop of the wider industrial crisis in Europe – including in the automotive sector – and the uncertain environment created by tariffs and weak consumer spending, the chemical industry will need to take action difficult decisions in 2026.
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