Global Chemical Markets Face Structural Upheaval Amid Escalating Trade Tensions
The global chemical industry is undergoing profound structural change driven by intensifying trade tensions and rising tariffs, threatening traditional export-driven models. This shift is prompting a move towards regionalized supply chains to mitigate geopolitical risks. While some major projects continue, the industry faces overcapacity and consolidation. Experts warn that the post-war trading system is ending, necessitating a pivot towards local production, sovereign supply chains, and exploring new opportunities in defence and circular economy technologies to ensure resilience in a protectionist world.
The global chemical industry is confronting an era of significant uncertainty and structural transformation due to escalating trade tensions and surging tariffs, dismantling decades of globalization. Average US tariffs, peaking at 28% and settling at 16.8%, have severely impacted global trade, undermining confidence and delaying investments. This environment jeopardizes established export-driven business models, pushing chemical producers towards a necessary shift to more local or regional supply chains to reduce exposure to geopolitical risks and tariff volatility.European producers, already facing weak demand, anticipate further challenges from a potential US-EU trade deal that could eliminate tariffs on US chemicals, potentially leading to oversupply from increased US exports and Chinese diversions to Europe. Despite these headwinds, some large-scale projects, like Borealis’ PDH unit and INEOS’ Project One, are proceeding, adding capacity to an already oversupplied market. However, other ventures, such as Grupa Azoty’s PDH-polypropylene project, face bankruptcy, highlighting the pressure on investments and the inevitability of industry consolidation.Industry analysts, like Paul Hodges of New Normal Consulting, emphasize that the post-war trading system is concluding. He advocates for a decisive pivot towards regionalized production and sovereign supply chains, arguing that export-oriented businesses are no longer viable. Hodges points to two critical trends: the imperative for local supply resilience and the growing demand from the defence sector, which offers a significant opportunity for chemical producers in securing critical materials. Additionally, recycling and circular economy technologies are becoming crucial to minimize reliance on imported feedstocks. The industry must adopt realism, abandon the expectation of guaranteed export markets, and embrace agility and innovation to redefine its business fundamentals for the coming protectionist decade.
