Article
European Chemicals Outlook: A Time for Critical Decisions
European chemical industry key topics: economical forecast, geopolitics, sustainability, and regulatory trends
As we move towards the second half of 2023, the European chemicals industry faces an uncertain future. Inflation has hurt consumer spending, a changing geopolitical landscape makes long-term investment and footprint decisions riskier. Industry commitment to sustainability will require large-scale transformation, and new regulations are on the horizon, not only in Europe.
Economic background: EMEA chemical industry hit by severe headwinds and uncertainty remains
For the first time in history the EU has imported more chemicals than it exported. This decrease in export competitiveness was triggered by a sharp spike in energy prices, followed by a sustained disadvantage at the level of energy cost. A significant number of industry players have reacted to this new situation by announcing cost-saving programs and personnel-reduction schemes for their European sites. The capacity for energy-intensive production has been reduced, and sometimes even shut down permanently. As of May 2023, there appears to be a modest uptick in the global economy, and inflation has reached its peak. Despite some negative developments, the general macroeconomic view is that inflation will be contained, and growth will be sluggish in 2023 – or at worst that a mild recession will follow.
Geopolitics: New risks for investments and operations
Another element to be considered is that over the past years, geopolitics have greatly increased in importance. Why? Because the chemical industry’s assets are largely long-term assets on the ground – and the experiences of supply chains disruptions due to Covid, the growing antagonism between China and the US, as well as the outbreak of the war in the Ukraine have shown that there is a real risk that geopolitics quickly and radically impact the value of these assets. The geopolitical development is relevant not only for “hard” assets like production plants, but also for “soft” assets, like digital tools, data, and intellectual property. In the Deloitte European Chemicals Outlook 2023 we take a deeper look into these effects with a deep dive on the geopolitical situation in China and its impact on the European chemical industry.
Sustainability: Where, when, and how?
There is no doubt that the European chemical industry is fully committed to a sustainable future – in particular to reduce CO2 emissions significantly by 2030 and to become net-zero by 2050 at the latest. But as of now, the different aspects of sustainability, like collaborative innovation, green energy supply, or feedstock substitution, have not yet translated into corporate action plans. Our recent discussions with chemical industry representatives show that most players have a short-term action plan but are still lagging behind in taking concrete long-term actions. Also, several major uncertainties remain, slowing down the chemical industry’s decision making. In the Deloitte European Chemicals Outlook 2003 we analyze these trends and deep dive into the topic of low-carbon hydrogen .
Regulation: A steady source of new uncertainties
Regulation has been a key area of industry uncertainty for several decades, and we expect that this situation will continue in the years ahead. But we are also seeing very relevant regulation to be enacted in 2023, with wide-ranging impact on chemicals players for years to come. The EU Emissions Trading System (EU ETS) and the EU Carbon Border Adjustment Mechanism (CBAM) are regarded as both a threat and an opportunity for European chemicals players. They could put the export competitiveness of the European chemical industry at serious risk if other regions are less strict, while on the other hand, a position at the forefront of the sustainability transformation strengthens the position of the European chemical industry in leading material transformation and innovation. Therefore, we assess the current context for these regulations, but also additional elements on the horizon, such as “zero tox”.
The time to act is now
Many long-term investment decisions need to be taken and implementation needs to be started this year, even if it is next to impossible to predict future geopolitical developments or correctly appraise the EU’s regulatory moves. One thing seems certain, though: The European business environment will be fueled by a growing demand for low-carbon chemicals, new recyclable and compostable materials, and new services that facilitate a circular economy. Serious questions remain as to what effect the Green Deal and its associated regulation will have on the industry’s exports.
Ihre Ansprechpartner
Dr. Alexander Keller
Specialist Director | Strategy & Business Design
Mark Reimer
Director | Strategy, Analytics and M&A | Energy & Chemicals
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