Chemical Industry Faces Prolonged Downturn Through 2026 Amid Overcapacity and Soft Demand
The chemical industry is experiencing a prolonged downturn expected to persist through 2026, driven by weakened economic growth, geopolitical tensions, and shifting policy landscapes. Initial recovery projections have been replaced by forecasts of slow growth, soft demand in key markets (except semiconductors), and significant overcapacity. Companies are responding by prioritizing cash, restructuring portfolios towards specialty chemicals, enhancing supply chain resilience, and leveraging innovation and AI adoption to navigate the challenging environment and prepare for a sustainability-driven recovery.
The global chemical industry is enduring a prolonged downcycle, with a gradual recovery now not expected until after 2026. This downturn, contrasting sharply with earlier projections of 3.5% growth for 2025, is primarily attributed to weakened economic growth, escalating geopolitical and trade tensions, and evolving policy landscapes, according to a Deloitte report. Global GDP forecasts have been downgraded, impacting overall demand, while geopolitical instability and ongoing trade disputes reshape supply chains, delaying investment, and reducing trade volumes, leading to multi-year lows in US chemical imports and exports. Regulatory shifts in Europe and the US further complicate the operational environment.Akey challenge for the sector is severe overcapacity in basic chemicals, particularly polyethylene and polypropylene, combined with soft demand across major end-markets like construction, automotive, and consumer goods. US production volumes are expected to contract, and profit margins remain under pressure. The semiconductor market, however, stands out as a bright spot, driven by AI-powered data center growth, creating demand for ultra-pure chemicals and spurring new investments. To navigate these headwinds, chemical companies are adopting multi-pronged strategies focused on profit prioritization, including cash preservation and portfolio restructuring towards higher-margin specialty chemicals. They are also building supply chain resilience against tariffs and geopolitical disruptions, innovating through R&D and digital models, and accelerating AI adoption to boost operational efficiency and R&D speed. While 2026 is anticipated to remain challenging, the industry eyes sustainability as the long-term driver for the next upcycle, requiring significant capital investment in low-carbon solutions.
