As of mid-2026, the European Union’s chemical industry is in serious trouble. It is still a major part of Europe’s economy — bringing in about €635 billion a year and directly employing 1.2 million people in roughly 31,000 companies, most of them small and medium-sized businesses. However, industry leaders and analysts say the problems go far beyond a normal economic downturn. They describe it as a structural crisis caused by four big pressures: falling production, weak demand, high costs, and companies moving production out of Europe.
Part I: Current Situation
1.1 Production and Factory Use In the first quarter of 2026, chemical production in the EU dropped 3.2% compared to the same period last year. The overall production index (with 2021 = 100) stood at just 84.4. The biggest drops were in basic organic chemicals (−12.7%) and polymers (−9.2%), which are the building blocks for many other industries.
Factory use (capacity utilization) improved slightly to 74.3% in the second quarter, but this is still well below the long-term average of 81.3%. Many factories are running well below full capacity, signaling deeper problems.
1.2 Trade Trade volumes are shrinking. In the first two months of 2026:
Exports: €32.7 billion (down 12.4%)
Imports: €26.0 billion (down 15.7%)
Trade surplus: €6.7 billion (slightly better, but only because imports fell more than exports)
The EU is still a net exporter of chemicals, mainly to the US, UK, Switzerland, and China. But the overall decline shows weakness both at home and abroad.
1.3 Differences Between Countries The problems are not the same everywhere:
Country Production Change (Q1 2026 vs previous year)
Netherlands −9.4%
Italy −7.7%
Germany −4.3%
France +2.4%
Germany, once the heart of Europe’s chemical industry, is hardest hit. It has already lost or is losing about 7 million tonnes of production capacity. This hurts not just chemicals but the wider manufacturing sector.
1.4 Losing Ground Globally Europe’s share of the world chemical market has fallen sharply — from 21% in 2009 to about 13% in 2024. China now holds around 46%. Europe still leads in high-value specialty chemicals, but it is losing ground in basic chemicals and petrochemicals. This weakens the whole supply chain.
Part II: The Four Main Problems
2.1 High Energy Costs Energy prices are the biggest issue. In early 2026, European natural gas cost about 3.3 times more than in the US. Electricity is also much more expensive. Producing ammonia in Europe costs $250–300 more per tonne than in the US. These differences are not short-term — they come from policy, infrastructure, and natural resources.
2.2 Weak Demand Chemical sales depend on other industries. Demand is low because car-making, construction, and consumer goods are struggling. Companies are keeping stocks low (destocking). The industry is seeing some stabilization, but not real recovery.
2.3 Global Competition China has built too much chemical capacity and is exporting at low prices. Chinese production often has a higher carbon footprint than Europe’s, but this doesn’t show up in prices because of weak border rules. The US and Middle East also have cheaper feedstocks. Europe is now in what INEOS boss Sir Jim Ratcliffe calls a “closure phase” for basic chemicals.
2.4 Strict Regulations The EU’s Green Deal and related rules aim to make industry cleaner, but companies say the rules are coming too fast and too heavy:
Tightening emissions trading (EU ETS)
REACH chemical regulations
Possible PFAS bans
Carbon Border Adjustment Mechanism (CBAM)
Other safety and design rules
Industry groups like Cefic warn that these rules risk causing “deindustrialization” — lowering emissions simply by shutting down factories rather than through innovation.
Part III: Factory Closures and Falling Investment
Huge amounts of capacity are being shut down:
2022–2025: About 37 million tonnes closed (roughly 9% of total EU capacity)
2025 alone: 17.2 million tonnes
Nearly 200 plants closed in five years
Major company moves
Dow Chemical closed several sites in Germany and the UK in 2026, cutting around 800 jobs.
INEOS has strongly criticized EU policy. Its big low-carbon Project ONE in Antwerp got no EU funding.
BASF is moving more production to Asia.
Other firms like Lanxess and Covestro are cutting costs and selling off parts of their business.
Investment collapse Investment fell 81% between 2022 and 2025. Once plants close and workers leave, it is very hard to restart them.
Jobs Around 20,000 direct jobs were lost by the end of 2025, with another 12,500+ announced in 2026. Many more jobs are affected indirectly in supply chains, especially in Germany, the Netherlands, and Italy.
Part IV: Government and Industry Actions
The EU has launched several initiatives:
Chemical Industry Action Plan
Critical Chemicals Alliance (started 2026) to protect key chemicals and sites
Plans to speed up permits and support decarbonization
Industry groups like Cefic are calling for realistic emissions targets, better protection against cheap imports, cheaper energy, and simpler rules. Sir Jim Ratcliffe’s open letter to EU Commission President von der Leyen highlighted the crisis and urged stronger action.
There is clear tension between green goals and keeping industry competitive.
Part V: Industry Views and Strategies
The industry sees “fragile improvement” but not real recovery. Companies are:
Focusing more on high-value specialty chemicals
Investing in decarbonization, recycling, and efficiency
Moving some production to other regions
Using digital tools and AI to cut costs
They argue Europe should keep production here because European chemicals are often cleaner than imports, and moving production abroad doesn’t help the global climate.
Part VI: Environmental Groups’ Views
Environmental organizations criticize some industry-friendly policies. They worry that the Critical Chemicals Alliance favors big existing companies and that simplifying rules could weaken environmental protection.
Part VII: Outlook
Near-term: Production in 2026 is expected to be flat or grow very slightly (+0.2%). Global growth is around 2.4%.
The problems are structural, not temporary. Three possible futures:
Managed decline (slow shrinking of basic chemicals)
Accelerated deindustrialization (fast collapse)
Strategic turnaround (strong policy support leads to a successful shift to green and specialty chemicals)
Conclusion
The EU chemical industry is in the middle of a profound change. It has lost huge market share, closed many plants, and seen investment dry up. But it still has major strengths — innovation, leadership in specialty chemicals, and importance to many other sectors.
The next few years will decide whether Europe can keep a strong chemical industry through smart policies on energy, trade, and regulation, or whether it will accept a slow decline. As industry leaders say, the goal should not be to reduce emissions simply by shutting down factories — but that is the current path unless decisive action is taken.