China Chemical Industry Enters Super Cycle

Over the past four years, the European chemical industry has been mired in a deep winter, with giants like Dow and BASF laying off more than 10,000 people, and Europe has shut down 37 million tons of capacity. Europe's share in global chemical output continues to decline, while the Chinese chemical industry is expanding both in capacity and market, moving "against the trend." The global chemical industry is experiencing a "rise of the East and decline of the West" shift. How will the global chemical industry's competitive landscape be reshaped, and is the Chinese chemical industry on the verge of a super cycle? In this episode, we will explore this.

Over the past four years, the European chemical industry has experienced a deep restructuring and intense adjustment, with layoffs and plant closures sweeping through the entire value chain. Dow announced global layoffs of 4,500 people, BASF initiated global personnel optimization and company restructuring, and several major European companies have successively closed ethylene cracking and polyolefin facilities.

According to a report released by the European Chemical Industry Council (Cefic), the closure of chemical production capacity in Europe surged sixfold between 2022 and 2025, resulting in a cumulative loss of 37 million tonnes of capacity over the four years—approximately 9% of Europe’s total chemical production capacity. Specifically, 2.9 million tonnes were shut down in 2022, 8.7 million tonnes in 2023, 8 million tonnes in 2024, and the figure surged to 17.2 million tonnes in 2025.

This round of shutdowns is not a localized phenomenon but spans the entire range of chemical products, from basic raw materials to specialty chemicals. Specifically, the upstream petrochemical sector accounted for 17.8 million tons of shut-down capacity, representing 48%; the basic inorganic chemicals sector accounted for 11.7 million tons, or 32%; the polymer sector accounted for 5.4 million tons, or 15%; and the specialty chemicals sector accounted for 2 million tons, or 5%.

Worse still, as production capacity has shrunk significantly, new investments and capital expenditures have also plummeted, with the annual investment scale dropping from 2.7 million tons in 2022 to just 0.3 million tons by 2025, virtually zero. Correspondingly, capital expenditures, which were 7.6 billion euros in 2022, have fallen to 1.5 billion euros by 2025, a decrease of 81%. The European chemical industry is experiencing a cliff-like decline. Why has such a drastic turnaround occurred in just a few years?

The root cause of the decline of Europe’s chemical industry is the sharp rise in European energy costs—a direct aftermath of the Russia-Ukraine war. Prior to the war, the EU imported approximately 40% of its natural gas and 30% of its crude oil from Russia. Following the outbreak of the war, the Nord Stream 1 and Nord Stream 2 natural gas pipelines from Russia to Europe were halted due to explosions or sanctions. By January 2025, the last remaining Russian natural gas pipeline to Europe—transiting Ukraine—ceased operations, completely cutting off natural gas deliveries. Although Europe has accelerated…

The result is a sharp rise in energy prices in Europe, with LNG import costs in 2024 increasing by over 400% compared to pre-war levels. The price of natural gas for German industry at one point reached more than 10 times the pre-war level, reaching an 18-year high; electricity prices in southern Norway surged 20 times, while electricity prices in Italy, France, and Spain also hit record highs, with electricity prices in Denmark breaking through 11 RMB per kWh, directly driving up the production costs for chemical companies. The chemical industry is also known as an "energy black hole," where natural gas and oil are two irreplaceable basic raw materials for the European chemical industry. For example, producing one ton of synthetic ammonia requires 800 cubic meters of natural gas, and natural gas is also used to produce methanol, methionine, TDI, MDI, and other basic chemicals; oil is used to produce ethylene, propylene, benzene, and other basic olefins and aromatics. Due to the skyrocketing energy costs, the European chemical industry has completely lost its global competitiveness.

The EU27's share of the global chemical industry has plummeted from 27% in 2004 to 13% in 2024. In stark contrast, China's chemical exports accounted for 38% of the global market share in 2024, an increase of 12 percentage points since 2020.

China's chemical industry has experienced the fastest period of development over the past 10 years. As of 2025, China has become the world's largest chemical production country, with many bulk chemical production capacities ranking first globally. The fields of olefins, aromatics, and lithium batteries all have significant scale advantages. In addition, the revenue of China's fine chemical industry accounts for 50% of the global market share.

Meanwhile, demand from China’s chemical industry in emerging sectors—including new energy, electronic information, and high-end equipment—is accelerating. Specialized chemical products such as solid-state battery electrolytes, hydrogen fuel cell materials, and POE encapsulation films for photovoltaics are expected to sustain rapid growth. In the electronic information sector, domestic substitution of electronic chemicals—including photoresists, CMP slurries, and ultra-high-purity reagents—is continuously accelerating. Furthermore, emerging industries such as low-altitude economy and humanoid robots are creating entirely new application scenarios for specialty engineering plastics, high-performance fibers, and lightweight composite materials. Over the next five years, China’s chemical industry is projected to maintain an annual growth rate of 40% in its foundational market share.

China, with its vast market demand, complete industrial chain support, and relatively low production costs, has become one of the top investment destinations for global chemical enterprises. International chemical giant BASF has shut down several plants at its Ludwigshafen site in Germany while increasing its investment in China. BASF believes that by 2030, China will account for three-quarters of global chemical capacity growth.

Traditional chemical production costs in Europe are significantly higher than those in the Middle East and Asia, a disadvantage that will persistently affect the European chemical industry in the long term. Europe's chemical sector is currently undergoing deep structural adjustments, gradually exiting basic chemical production and shifting this capacity to Asia and the Middle East, thereby focusing on high-end materials and specialty chemicals to establish a "small but sophisticated" industrial structure. This trend of capacity contraction and industrial hollowing in Europe is expected to last for about a decade.