NEWS CENTER

Six years after the pandemic outbreak, the global chemical industry remains mired in a downturn. Profitability in basic chemicals production is still at historic lows, and S&P Global forecasts that capacity utilization will remain below the breakeven point for the next two to three years. However, the current crisis is fundamentally different from all previous economic recessions — and China is at the center of this transformation.

"This is not a typical economic recession caused by weak demand. We are facing a structural supply crisis, primarily driven by China's export expansion," said Mark Eramo, a special advisor on energy at S&P Global and an industry analyst with nearly 40 years of experience.

Over the past two decades, he added, the Chinese government has strongly supported the construction of modern, large-scale chemical plants. The total capacity of these plants has significantly outstripped the growth rate of domestic demand, which was previously fueled mainly by the boom in construction, housing, and infrastructure development. As that boom subsided, many of these plants—often subsidized and originally designed for the domestic market—were converted into export-oriented facilities.

The impact has been enormous: Cheap, modern, and efficient Chinese capacity has flooded markets across Asia, the Middle East, Europe, and North America, creating unprecedented price pressure and margin erosion for competitors. A clear asymmetry has emerged: centrally planned strategic supply expansion on one side, versus market-driven producers forced to meet quarterly profit targets on the other.

The key phenomena currently having the greatest impact on the industry situation are:

Overcapacity and Accelerated Rationalization
—The number of plant closures is surging in Europe and parts of Asia. In some countries, discussions are resurfacing regarding the strategic importance of chemicals and potential government interventions to protect critical supply chains.

The Oil Price Reversal and the Gas Price Divergence
—Oil prices remain stable or trend lower, while natural gas prices continue to rise, driven by record energy demand from data centers, threats from extreme weather, and other factors. This undermines the competitiveness of natural gas producers in North America and the Middle East.

Advancing the Sustainable Development Agenda
—The slogan of an "energy transition" is gradually being replaced by the more pragmatic concept of "energy expansion." Priority is being given to low-emission projects that are technologically mature, commercially viable, and meet actual market demand.

Demand is Not the Problem
—The growth rate of global demand for chemical products closely tracks the growth rate of global GDP. A recovery in the construction, automotive, and overall economic activity could lead to a relatively rapid rebound—provided the pressure from oversupply is alleviated first.

"This current cycle is one of the most challenging in the modern chemical industry's history. At the same time, it demonstrates just how quickly global value chains can be reshaped by a single player operating under a different economic logic. We expect further consolidation in the industry in the coming years, with accelerated M&A activity and, in some regions, a more active role for governments in shaping the structure of chemical supply," Mark Eramo concluded.