The global chemical industry is in a phase of "slow recovery," accompanied by structural shifts centered on innovation, sustainability, and resilience. China serves as a key growth driver, while Europe grapples with persistent margin pressures, and merger and acquisition (MA) activity has moderated but remains focused on portfolio optimization.
1. Macroeconomic Environment and Demand Dynamics
Global chemical production is experiencing moderate recovery, with the easing of destocking cycles across the industry. However, volatility persists in product pricing and end-market demand—for instance, sectors like automotive (a major consumer of specialty chemicals) and construction (dependent on bulk chemicals such as adhesives and coatings) still face inconsistent growth momentum. For chemical companies, achieving steady volume expansion and maintaining pricing discipline have become critical to safeguarding profit margins.
2. Profitability Pressures and Cost Optimization
European chemical majors continue to confront significant profit and margin squeezes, driven by high energy costs, strict carbon regulations, and sluggish regional demand. To alleviate this pressure, the industry is ramping up capacity rationalization (e.g., phasing out outdated, high-cost production units) and launching aggressive cost-cutting programs. These efforts include pruning non-essential portfolios, closing underperforming sites, and optimizing production footprints—all aimed at improving cash flow and restoring operational efficiency.
3. China’s Role as a Core Growth Engine
China’s chemical demand and production volumes continue to rise, solidifying its position as the industry’s primary growth pole. Multinational chemical companies are deepening their localization strategies in China: they are establishing more regional RD centers and application development hubs to tailor products to local market needs (such as high-performance materials for electric vehicles and advanced packaging solutions). This localization not only helps capture China’s growth potential but also reduces risks associated with trade barriers and geopolitical uncertainties.
4. Trade Disruptions and Geopolitical Shifts
US-China trade tensions and tariffs remain a drag on industry sentiment, disrupting traditional supply chains. To mitigate these risks, chemical exporters are actively diversifying their target markets, shifting focus to Southeast Asia, the Middle East, and Africa. This has accelerated the trend of "nearshoring" (locating production closer to key markets) and "friendshoring" (partnering with geopolitically aligned countries). As a result, global trade lanes for chemicals are being reconfigured, with regional supply networks gaining greater importance.
5. MA Activity: Focus on Small-to-Mid-Cap Deals
MA activity in the global chemical industry has moderated compared to previous years, with large-scale transactions becoming scarce. Instead, the market is dominated by small- to mid-cap deals: private equity firms are driving carve-outs of non-core assets from large companies, while strategic buyers focus on "bolt-on" acquisitions to strengthen core capabilities (e.g., specialty chemicals or sustainable technology portfolios). Additionally, European chemical assets are increasingly being put up for sale as companies seek to streamline operations and exit low-growth segments.
6. Sustainability and the Rise of Green Chemistry
Decarbonization, circular economy principles, and green chemistry have become top priorities, with investment in these areas accelerating rapidly. Key trends include:
- Scaling up the use of bio-based and recycled feedstocks (e.g., plant-based monomers for plastics).
- Advancing chemical recycling technologies to convert plastic waste into usable feedstocks.
- Adopting low-carbon production processes (such as hydrogen-based ammonia synthesis) to reduce carbon footprints.
Companies are also embedding environmental, social, and governance (ESG) criteria into procurement and product design to meet customer expectations and regulatory requirements, while enhancing brand value.
7. Digital Transformation and Supply Chain Resilience
Digitalization is reshaping operations, with data-driven decision-making, artificial intelligence (AI)/machine learning (ML), and automation becoming mainstream. These technologies are applied to:
- Predictive demand and price forecasting to optimize inventory levels.
- Dynamic sourcing strategies to quickly adapt to supplier disruptions.
- Real-time supply chain visibility tools to track raw materials and finished goods across global networks.
Automation of exception handling (e.g., alerting teams to delayed shipments) is also improving supply chain resilience, helping companies mitigate risks from disruptions like logistics bottlenecks or raw material shortages.
Key Data Highlights
- Production Growth: Global chemical production increased by 3.4% in 2024, with a 3.5% growth forecast for 2025 (per the American Chemistry Council, ACC).
- China’s Performance: From January to February 2025, China’s petrochemical exports rose by 15.24% year-on-year; 47% of 62 key chemical products in China are projected to reach their top 30% performance levels over the next five years.
- Market Size: The global chemical market reached $6.18 trillion in 2024 and is expected to grow to $6.32 trillion in 2025, representing a year-on-year increase of 2.3%.
Strategic Priorities for 2025
- Deepen China Localization: Strengthen local RD, application development, and production to capitalize on growth and reduce geopolitical risks.
- Optimize Scale and Regionalization: Rationalize high-cost assets and build regional production hubs with multi-source supply chains and multi-modal logistics.
- Leverage Sustainability for Growth: Scale up investments in bio-based/recycled feedstocks, chemical recycling, and low-carbon processes; integrate ESG into core operations.
- Build Resilient Portfolios: Pursue bolt-on acquisitions to enhance core capabilities while divesting non-core assets.
- Accelerate Digital Adoption: Deploy AI/ML for forecasting and sourcing, and enhance real-time supply chain visibility to improve decision-making and efficiency.
