Record plant closures fall short of restoring normal operating rates
China set to lead globally in specialty products and become net exporter of most base chemicals - its surplus projected to shape worldwide trade flows and margins

/PRNewswire/ - The global chemicals industry will likely need the net closure of roughly 7.5 percent of worldwide olefin production capacity by 2030, equal to 35 million metric tons, to restore typical operating rates, based on fresh analysis from Bain and Company. Even with record plant closures, chemical facilities are forecast to operate below their historical utilization average through 2030, as demand growth alone cannot close the gap.

In the report titled Chemical Companies Do Not Have to Accept Managed Decline, Bain concludes that the industry's downturn represents a structural reset rather than a standard market cycle. Persistent overcapacity has squeezed margins, while low-cost feedstock has further split the sector. China's ongoing capacity expansions and rising strength in specialty chemicals intensify the strain. The recent price increase after the Iran conflict has created a brief opportunity for firms to adjust strategies, yet Bain warns against confusing the supply disruption with a true recovery.

"The chemicals sector's traditional downturn approach of trimming costs, safeguarding the balance sheet, and awaiting demand rebound no longer works. Demand growth by itself will not absorb the surplus capacity this time. Meanwhile, the price gap between ethane-based and naphtha-based plants grows harder to manage," said Piet de Paepe, global head of the Chemicals practice at Bain and Company. "Firms must choose more carefully where they compete, focusing investments on products and regions offering clear edges instead of hoping for the next cycle."

Europe, Korea, and Japan have reduced capacity, yet these steps do not offset China's rapid additions. In certain products, Chinese capacity already equals or surpasses total global demand. Shortfalls in closures each year will postpone margin recovery, widening the divide as lowest-cost producers strengthen their position.

Gas-based plants now enjoy a sustained cost edge, with US ethane expected to stay about 300 to 400 dollars per ton below Asian naphtha prices. Over half the cracker fleets in Europe, Eastern Asia, and Southern Asia rely on naphtha, leaving them especially vulnerable. The US and Middle East stand best positioned to gain from the ethane-based cost advantage, though their reliance on ethane also restricts flexibility during supply issues.

China's rising competitiveness challenges Western producers even in specialty chemicals, where they have long depended on higher margins. By 2030, China's share of the global specialty chemicals market is projected to top 30 percent, exceeding North America or Europe.

Chinese chemical firms no longer compete solely on price. They now invest more in chemicals R and D than US or European counterparts, while enhancing speed to market, customer service, and strategic partnerships to speed their move into specialties. They also target higher-value specialty roles, building on quick growth in areas such as carbon fiber.

These changes reshape the global chemicals market, with returns increasingly set by region and policy alongside the cost curve. By 2030, Bain projects nearly 70 percent of ethylene capacity will concentrate in China, the Middle East, and North America. High-cost plants in Europe and Northeast Asia will keep closing. China will turn into a net exporter of most base chemicals, so its surplus rather than Western demand will determine global trade flows and margins.

Given this setting, Bain states that chemical companies must identify where they can build clear competitive edges through cost or innovation, rethink their portfolios, and exit or consolidate where no viable path remains. M and A activity can speed this shift by creating scale, cutting costs, or bolstering positions in more attractive specialty markets.

The report also urges firms to apply a clean-slate review of costs and geographic footprints, including exposure to China. Choices on closing or converting high-cost, carbon-exposed assets should occur within the next 12 to 18 months while the reset window stays open.

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