Market Analysts: European Basic Chemical Industry Faces Mounting Challenges in Recovery

After years of losses and rapid global capacity expansion, high production costs and aging equipment have left European chemical producers struggling, as the continent's basic chemical industry faces a wave of plant closures. Despite multiple government initiatives aimed at supporting the chemical sector, Europe’s basic chemicals industry remains entirely uncompetitive against external rivals. Market observers warn that the European chemical industry is now facing a matter of survival, especially in basic chemicals, and efforts to revive it may already be too late.

"While the rest of the world is building over twenty new cracking plants, Europe is sleepwalking into industrial decline," sharply remarked Jim Ratcliffe, founder of INEOS Group, at a recent event. The billionaire, who built his fortune by acquiring petrochemical assets from companies like BP, joined other industry leaders in criticizing the lack of action by European governments.

The European Commission recently pledged support for domestic production of strategic chemicals such as ethylene and propylene, planning to expand state aid to modernize factories and requiring public tenders to prioritize products made in Europe—similar to the EU’s 2023 legislation on metals and minerals. However, market participants warn this move may come too late to reverse the trend. Giuseppe Ricci, head of industrial transformation at Italy’s Eni Group, cautioned: "It’s like being on the Titanic—we can’t keep denying reality; we must find lifeboats." Eni’s Versalis chemical division has incurred cumulative losses exceeding 3 billion euros over the past five years, closed Italy’s last two steam crackers, and shifted focus toward investing 2 billion euros in biorefineries and chemical recycling.

Meanwhile, multinational corporations including Dow, ExxonMobil, TotalEnergies, and Shell are also closing or reevaluating their European chemical assets, with most shutdowns targeting naphtha-based cracking units—the core facilities that convert hydrocarbons into fundamental feedstocks like ethylene and propylene. Although European chemical firms often highlight higher returns from specialty chemicals in financial reports, an EU joint report from eight countries in March projected that up to 50,000 jobs could vanish by 2035 due to cracker closures—an impact that cannot be underestimated. According to Wood Mackenzie, 40% of the EU’s existing 24.5 million-ton annual ethylene capacity is currently at medium-to-high risk. Compared to Europe’s reliance on naphtha, cracking plants in the U.S. and Middle East use cheaper ethane as feedstock, giving them a clear cost advantage. Consulting firm ADI Analytics forecasts that North American ethylene capacity will grow from the current 54 million tons per year to 58 million tons by 2030. When combined with new capacity in Asia, the competitive pressure on Europe’s basic chemicals sector becomes immense.

Under pressure from the U.S., Middle East, and Asia, European policymakers now face a stark choice: intervene decisively or watch the continent’s chemical backbone erode. Faced with the reality of becoming a net importer of ethylene and propylene in recent years, countries including France, Italy, and Spain called in March for a “Critical Chemicals Act.” EU Industry Commissioner Stéphane Séjourné said strategic supply chains and production bases would be identified, emphasizing that “the primary issue is sovereignty—keeping our steam crackers operational.” Yet market observers note the price of such “sovereignty” is extremely high: according to Citigroup analysts, the average age of European cracking plants exceeds 40 years. An Eni report from March showed that Europe’s naphtha-based ethylene production costs reach $800 per ton, far above the $400 per ton in the U.S. and $200 per ton in the Middle East using ethane feedstock.

In fact, Europe’s petrochemical industry is attempting breakthroughs. INEOS is investing 4 billion euros to build Europe’s first new cracker in 30 years in Antwerp using ethane feedstock. With a designed ethylene capacity of 1.45 million tons per year, the plant is scheduled to start operations in 2026. From the Middle East, Abu Dhabi National Oil Company’s $60 billion merger with Austria’s OMV will create Borealis, the world’s fourth-largest polyolefins producer, which plans to export polymers specifically to Europe, competing directly with petrochemical producers in the U.S. and Asia.

Analysts currently believe that European petrochemical production will not disappear entirely, but will enter an era of oligopolistic competition.