FT: Iran conflict pushes Europe’s chemicals industry to edge

The European chemicals sector is edging closer to structural decline as geopolitical tensions in the Gulf intensify pressure on already fragile margins, compounding a crisis driven by high energy costs, weak demand and fierce Chinese competition, FT writes.

In the Port of Rotterdam — one of Europe’s key chemical hubs — the industry’s strain is becoming increasingly visible, with multiple plant closures over the past year disrupting tightly interlinked production networks that underpin the continent’s industrial base.

While the Middle East conflict has temporarily eased some competitive pressure by disrupting Chinese supply chains reliant on Gulf feedstocks, it has also driven up energy costs and increased volatility in key inputs such as naphtha, feeding through into downstream chemical pricing.

Industry executives warn that any easing of the geopolitical shock could quickly expose deeper structural weaknesses. Peter Huntsman, chief executive of Huntsman Corporation, said rising energy prices in Europe underscored the region’s vulnerability to external shocks, while analysts at Bernstein cautioned that any return to pre-crisis conditions could trigger renewed plant closures.

In Rotterdam, parts of the chemical cluster have already been wound down. Mitsubishi halted development of a specialist production unit earlier this year, while broader shutdowns across Europe have accelerated sharply. According to industry group Cefic, plant closures across the continent have risen sixfold in four years, with roughly a tenth of capacity lost and tens of thousands of jobs affected.

Investment has also collapsed, falling by more than 80 per cent last year, as producers face a combination of structurally higher energy costs than the US and China, slower permitting processes, ageing infrastructure and tightening EU climate regulations.

The knock-on effects are spreading across interconnected production chains. In Rotterdam’s chlorine value network, closures by upstream and downstream operators have reduced demand for key inputs, raising the risk of further shutdowns in a tightly integrated system where one plant’s output often serves as another’s feedstock.

Matthias Berninger of Bayer likened the sector to a “Jenga tower”, warning that incremental losses across the system could eventually trigger a broader collapse of Europe’s industrial base.

The crisis is not confined to the Netherlands. UK chemical output has fallen sharply in recent years, with industry groups warning of further closures amid ageing infrastructure and limited domestic production of critical materials such as ammonia and ethylene.

At the same time, European producers are grappling with oversupply from China, where excess capacity has redirected exports into EU markets, intensifying price competition. Although some Chinese plants have declared force majeure due to Gulf disruptions, analysts say this offers only temporary relief.

Executives, including Jim Ratcliffe, chief executive of INEOS, say the sector’s long-term trajectory remains uncertain without decisive policy intervention, with some warning that Europe risks deindustrialisation if conditions do not improve.

The industry’s outlook has further darkened following a revised forecast from credit insurer Atradius, which expects EU and UK chemical output to decline in 2026.

For now, producers remain caught between short-term geopolitical volatility and longer-term structural pressures, with little sign of relief in energy pricing or global competition dynamics.

By Aghakazim Guliyev