Industrial chemical production and supply in the EU is facing a broad range of challenges as chemical companies attempt to return to their long-held position as market leaders.
With global chemical market share consistently falling year-on-year, the European chemical industry is also trying to improve sustainability, combat overseas competition, and reduce issues over regulatory compliance, while also reducing raw material dependency and lowering carbon emissions.
One of the primary challenges is the strict regulatory environment within the EU which requires chemical companies to comply with a wide range of complex and changing regulations. REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) regulation maintains a high standard of protection, for both people and the environment, from the risks that can be posed by chemicals. At the same time, it also allows closer integration from a chemical industry disjointed by national boundaries.
Today, however, many chemical industry analysts blame this regulatory burden for EU chemical industry decline, claiming it places European chemical companies in an uncompetitive situation compared to chemical manufacturers from the rest of the world.
A further disadvantage is raw material security, with chemical companies in other regions experiencing reliable feedstock sources and steadier prices, with easier access to shale gas (North America) and oil (the Middle East)–a situation exacerbated since trade embargoes and tariffs were placed on Russian exports.
Meanwhile, chemical producers in Asia maintain the advantages of lower wages and a prime location next to China’s manufacturing sector.
Furthermore, sustainability concerns are becoming more important for the chemical sector, as consumers and regulators demand more environmentally friendly products and processes. Issues with a higher priority in Europe than in other parts of the world. These demands include a push towards reducing carbon emissions, increasing the use of renewable resources, and minimizing waste generation.
Recent research conducted in the EU has highlighted these widespread concerns for the long-term health of the chemical industry, forcing many to question what can be done to reverse the trend of reduced EU chemical output.
For example, in a Boston Consulting Group poll on chemical industry sentiment, nearly three-quarters of participants indicated they presently don't think they will invest in new facilities and locations in Germany because of the country's bureaucracy, high energy costs, and drawn-out licensing processes.
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A further study, conducted on the Chemistry4Climate platform, examined the chemical industry’s energy consumption and found that its overall need for hydrogen and power was decreasing as a result of lower chemical industry output. Yet, this reduced need for power will not resolve the problem of EU’s transition to NetZero.
“This does not automatically make the path to climate neutrality any easier,” explains Wolfgang Grosse Entrup, a spokesperson for VCI, the German chemical industry body. “On the contrary: the climate will not be helped by the decline in German production, and our location will become more susceptible to supply chain problems.”
“We now need a comprehensive and long-term innovation and growth agenda at full speed,” adds Entrup. “Nothing less than the German model of prosperity is at stake. This should be the top priority across party lines.”
But what would reform look like? And with so many external and internal pressures on the EU chemicals sector, is transition possible?
Current thinking is that chemical companies should focus on adopting innovative technologies and practices that align with environmental regulations while also meeting market demands. These initiatives could include the following:
· Streamlining regulatory processes to facilitate quicker approvals for new chemical products and processes. A move which would also encourage investment and innovation.
· Simplifying compliance requirements for chemicals already established in the market to maintain safety and environmental protection.
· Improving collaboration between industry stakeholders and regulatory bodies to create a balanced approach that supports both growth and sustainability.
· Promoting circular economy principles within the chemical sector to reduce waste and resource consumption. By prioritising the integration of recycling into chemical production processes, European chemical companies could reduce their dependency on overseas feedstocks, lower costs, and minimize their ecological impact.
So, it seems that while the EU chemical sector will continue to face significant pressure in the short to medium term, there are avenues for revitalization. By reforming legislation to streamline regulations, increasing investment in research and development, and embracing innovative technologies like advanced chemical recycling and artificial intelligence, the European chemical sector could reverse its current decline.
However, with war ongoing between two of its major raw material suppliers and political turmoil over the social and economic route that the continent should take, making fundamental change will not be straight forward.
For while the EU chemical sector has the potential to overcome its challenges and re-emerge as a global leader in the chemical industry, its path to salvation remains far from clear.
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