Clouds that hung over the chemical industry the past couple of years have not lifted as expected, casting a shadow over the industry’s outlook for 2025 and beyond. Stakeholders expected a turnaround last year following a disappointing 2023, which saw industry players focus on reducing costs and increasing resilience. The hope was that macroeconomic market conditions would improve in 2024 and spur a rebound.
But the combination of overcapacity and weak demand in China significantly impacted global supply chains, leading to influx of cheap imports and continued pricing pressure. Rising energy costs — particularly high electricity prices in Europe — triggered manufacturers to consider relocating or resizing operations. A shortage of skilled workers is exacerbated by an aging workforce. That, coupled with bureaucratic hurdles, hinder operational adaptability and efficiency.
Political turmoil and tendencies towards increased protectionism and deglobalization in major economies such as the US, France, and Germany introduce further unpredictability. In the US, President Donald Trump has pledged to implement tariffs of up to 60% on imports from China and up to 20% on imports from other countries. This could reduce global trade growth in 2026 by as much as 2.4 percentage points, with $67 billion of European and Chinese exports at risk if a trade war escalates, according to Allianz. These uncertainties have driven a wave of strategy adaptations and revisions across chemical businesses. Capital expenditure projects are being postponed as companies reassess their investment priorities to act with caution on the current economic climate and persistent uncertainty.
It is essential for industry stakeholders to remain vigilant and proactive in navigating this turbulent environment. Besides a continued cost and resilience focus, here are three imperatives for chemical companies in 2025 and beyond.
Adapting to shifts in US import policies and domestic production trends
The ramifications of potential tariffs under the Trump administration require a thorough examination. These tariffs could significantly impact the chemical sector, particularly regarding essential petrochemical building blocks.
The total shipment value of base chemicals, along with their direct intermediaries, reached $223 billion in the US in 2023, according to the American Chemistry Council. Out of this, $46 billion worth of these crucial materials were imported. The primary trade partners in this sector include Canada, China, and Germany, all of which could be hit by import tariffs.
While a substantial share of olefin demand is satisfied through domestic production, the situation diverges for aromatics and methanol, where imports constitute as much as 50% of the US market. Downstream sectors that depend on these materials — from industrial and consumer plastics to pharmaceutical additives — are likely to encounter raw material cost increases fueling inflation.
Facing uncertain economic conditions, many firms may experience both adverse and beneficial effects. The latter driven by a more positive outlook for US domestic activities due to tax cut measures and deregulation efforts being proposed by the Trump administration and new Congress. If enacted, those steps could ease financial conditions and foster growth and investment in the region.
On the European market, prices for raw materials and operations remain at higher levels compared to other regions. Slower domestic consumption further adds to the volatility of Europe-based chemical production. Assets and value chains located in Europe or targeted for the European market must continue to focus on resilience and cost effectiveness.
Players need to review their global footprint and investment strategies to balance regionally diverse effects and capture underlying growth momentum in the US, while focusing on resilience and cost effectiveness in Europe.
Seek out new and alternative growth opportunities in the chemical industry
Chemical producers need to investigate and explore additional avenues for growth and diversify sales markets. This calls for a renewed focus on innovation and introduction of new, differentiated products around circular business models or lower footprint solutions. Additionally, a revision of geographical footprint is also required to ensure businesses are seizing growth opportunities in emerging markets.
India is a prime example. Currently valued at approximately $220 billion by VCI and Cefic, the Indian chemical industry is projected to grow at a compound annual growth rate (CAGR) of 11% to 12% by 2027 and reach $1 trillion by 2040, making it an attractive target for investments, sales, and distribution. This is backed by government plans to enhance the industry in the near future — with the Indian government implementing several favorable policies, including the Production-Linked Incentive (PLI) scheme and the Remission of Duties and Taxes on Export Products (RoDTEP). These initiatives have proven effective in attracting substantial foreign direct investments with approximately $844 million reported for 2024, according to Statista.
Additionally, competitive labor costs, the ability to construct manufacturing units more economically than the developed world, strong tail winds from China, and supply chain diversification positively impact the development of the chemical sector in India — especially higher margin specialty chemicals.
Significant investments are being made to enhance the country’s infrastructure, with initiatives such as the establishment of Plastic Parks and Petroleum, Chemical, and Petrochemical Investment Regions (PCPIRs), aiming to improve operational capabilities and efficiency, providing chemical companies with attractive conditions to increase value creation.
Conducting honest evaluations of ESG portfolio and transition speed
Sustainability continues to be one of the top priorities of the industry, yet ambitions are getting grounded by financial realities, and we see companies moving out net zero target timelines. A review of the CDP database found that 44% of chemical companies reported a decline in “green capex” in 2023 and 2024; and 36% are projected to see a decline this year. In the absence of price premiums and demand shifts, players struggle to build viable business cases for investment needs in research and development and assets for renewable and sustainable products.
So far, customers are paying for performance, not for sustainability for the sake of sustainability. And so, innovation must deliver on both — superior performance and eco-friendly characteristics such as materials that are less carbon intense, circular, or non-toxic. A review of research and development (R&D) priorities and strategic product portfolio decisions are needed to ensure that limited funds are directed to fields that deliver on both dimensions. Beyond that, a drastic change in sentiment is currently only expected from regulatory actions such as seen in the European Union’s plastics directive, that will force buying patterns to change. The regulation aims to reduce packaging waste and sets strict quotas for using recyclable materials.
This year, even more than 2024, chemical executives will concentrate on revising cost structures and regaining competitiveness, while maintaining focus on their long-term green transition goals. Chemical companies need to assess their relative positioning concerning challenges such as reliance on the US and Chinese markets, and respective mitigation strategies. They need to identify alternative growth opportunities and ways to capitalize on these in both the short and long term. Additionally, it is crucial for them to conduct a health check of their ESG portfolio, R&D, and product portfolio, as well as asses their funding needs if they wish to maintain a competitive edge.