Chemicals sector risk report

The global chemicals industry remains one of the most strategically important industrial sectors, underpinning virtually every major value chain from construction and automotive to electronics, agriculture, healthcare and consumer products. The sector encompasses a broad range of segments, including basic chemicals, petrochemicals, polymers (plastics), packaging, specialty chemicals, agrochemicals (fertilizers and pesticides), coatings and pharmaceutical intermediates. While long-term growth fundamentals remain intact due to rising material demand in emerging economies, technological innovation and the increasing use of advanced materials, in 2026 the industry is navigating a widening structural divide between globally competitive producers and higher-cost regions. 

Asia-Pacific, led by China, continues to dominate global chemical production and consumption, accounting for approximately half of global output and demand. China has expanded capacity aggressively over the past decade, particularly in petrochemicals, polymers, and basic chemicals, supported by large-scale industrial policy, integrated refining and chemical complexes and strong domestic demand. However, the rapid build-out of Chinese capacity has contributed to global oversupply in several commodity segments, placing pressure on margins worldwide and accelerating rationalization among higher-cost producers. At the same time, India continues to show strong growth, supported by domestic demand and specialty chemicals. Across APAC, companies are increasingly prioritizing higher-value specialty chemicals, advanced materials and sustainability initiatives to offset pressures in traditional commodity markets. 

The US remains one of the strongest global competitors in 2026, benefiting from abundant shale gas resources, lower-cost ethane feedstocks and highly integrated petrochemical infrastructure along the Gulf Coast. These structural advantages have strengthened the competitiveness of US producers, particularly in ethylene, polyethylene and other olefin-based products.  

Europe, by contrast, continues to face a challenging industrial outlook, with its chemical sector undergoing a significant structural adjustment as high energy costs, carbon pricing, regulatory complexity and weak demand undermine the economics of energy-intensive production. Despite some improvement in business confidence, the recovery remains fragile amid persistent geopolitical and trade uncertainties, while the industry's performance remains well below pre-crisis levels. Europe's structural energy cost disadvantage – particularly natural gas prices that remain significantly above those in the US – continues to erode competitiveness, discourage investment and accelerate the relocation or closure of production capacity. These challenges are especially evident in olefins, the essential building blocks for plastics and many industrial materials. Europe has shifted from being broadly self-sufficient in polyolefins to becoming increasingly dependent on imports, a trend expected to continue over the coming decade as domestic olefin capacity declines. This erosion of production capacity extends beyond the chemical sector, posing broader risks to industrial competitiveness and supply-chain resilience, given the strategic importance of olefins and their derivatives across manufacturing value chains. On top of this, the European chemical sector faces a strategic dilemma: balancing decarbonization objectives with the need to preserve industrial capacity. The region’s transition toward lower-carbon production is necessary, but the current cost environment creates significant challenges for energy-intensive industries. Electrification of chemical processes, particularly steam crackers, represents one potential pathway. Pilot projects demonstrate that electric crackers could significantly reduce emissions, potentially cutting carbon intensity by up to 90% in certain applications. However, commercial deployment requires substantial investment, competitive electricity prices, reliable power supply, supportive policy frameworks and regulatory certainty. 

Geopolitical risks and supply-chain security issues have intensified in 2026. Geopolitical developments are becoming an increasingly important factor for chemical markets. The Middle East conflict has highlighted the vulnerability of global material supply chains and reinforced the strategic importance of domestic chemical capacity. Disruptions to energy flows can quickly affect petrochemical margins, benefiting low-cost producers while increasing pressure on regions dependent on imported energy and feedstocks. In 2026 and 2027, chemical companies are likely to continue reassessing supply chains, prioritizing resilience alongside cost efficiency. This could accelerate regionalization trends, encourage investment in integrated production hubs and increase strategic importance of countries with secure energy and feedstock access. 

Entering 2027, the sector recovery should be highly uneven across regions and segments. With global GDP anticipated to improve in 2027 (+2.9% from +2.5% in 2026), industrial activity should stabilize next year, with chemicals demand growth expected to improve gradually. However, the industry will increasingly be defined by a widening gap between producers with structural cost advantages (US and Middle Eastern companies) and those burdened by higher energy and feedstock costs, with European players expected to remain at a competitive disadvantage. The survival of Europe’s chemical industry will depend on its ability to preserve profitable capacity, accelerate in low-carbon technologies, improve its industrial infrastructure and create a more predictable investment environment. Commodity chemical markets are likely to remain primarily driven by cyclical pricing dynamics, limiting the scope for structural differentiation, while specialty chemicals and advanced materials are expected to benefit from stronger pricing power and long-term demand trends.