Are we seeing the end of the road for the European chemical industry? Will it still exist in its current form in 5 years’ time? INEOS owner Sir Jim Ratcliffe was not optimistic when he talked to Bloomberg last month:
“It is finished. The high costs of energy and carbon have left Europe’s petrochemical industry struggling to compete with the rest of the world. Europe today is a mess for petrochemicals. Everyone is leaving petrochemicals behind in Europe, something I have never seen before in my working life.”
Ratcliffe cites the UK as a case study, arguing that “the country’s industry has all but collapsed. There isn’t much of a chemical industry in Britain anymore. It’s finished”.
It is certainly hard to argue with Sir Jim’s analysis of the industry’s problems. It currently faces a formidable array of major challenges:
- Its cost base is wildly uncompetitive versus the other major regions
- Global overcapacity is at record levels
- Demand is at best stagnant
And today’s globally ageing populations mean that the profitable middle market of the BabyBoomer SuperCycle years has now disappeared, as the chart shows.
Margins down the value chain are therefore under increasing pressure as markets polarise again between high-volume Value offerings and low-volume Luxury.
It is also true there are no easy solutions available. But can Europe simply allow the chemicals industry to disappear? This seems most unlikely, as Bloomberg also notes in the interview:
“Chemicals are critical to the supply of plastics and products used in everything from textiles to electronics and construction. The sector is not only crucial for industrial growth, but also accounts for almost 10% of European output, with sales of around €597bn ($640bn) before the recession.”
Chemicals highlight the need for an EU industrial strategy based on the Green Deal.
As always, chemicals are the best leading indicator for the changes that are now urgently required.
The new EU Commission and Parliament, and the new UK Labour government need to urgently agree on two key issues:
- The first is that incentives, not penalties, are a better way of achieving Net Zero targets
- The days of penalising domestic chemicals production, and thereby encouraging the collapse of the industry, must end
- Equally important is the need to protect the industry from unfair imported competition with tariffs, where necessary
“Action this Day”
These changes cannot wait, and need to be implemented by year-end, given the urgency of the situation.
Essentially, we are at one of those moments when “there is no alternative”, as former UK premier Margaret Thatcher highlighted in 1979 when taking power.
The clock has been ticking for current strategies for over a decade and there is no time left to waste.
CEFIC’s bold Antwerp Declaration details the changes that are needed. And it has developed a very impressive range of support within the European Commission and a wide range of industry stakeholders.
But it is one thing to identify what needs to be done. The critical test is now ahead – making it happen. Companies, investors and policymakers need to move into action mode. They need to borrow Winston Churchill’s famous motto, “Action this Day”.
As Sir Jim has highlighted, the penalty for doing nothing and hoping that something will turn up, will be closure.
Please click here if you would like to read the full analysis in ICIS Chemical Business.