Europe’s chemicals sector is getting some short-term relief, but the longer-term problem has not disappeared. Reuters reported that supply disruptions linked to the Middle East conflict have recently supported pricing for parts of the sector, helping companies such as BASF, Brenntag and Evonik raise profit guidance. The concern is that stronger pricing may improve the near-term earnings picture without solving the deeper issues of weak volumes, excess capacity and competition from Asian producers.

The pressure is clearest in the industry’s cost base. Cefic’s Q1 2026 Chemical Trends Report says European gas prices were still 3.3x higher than U.S. levels between January and April 2026, while EU27 chemical capacity utilisation remained around 74%, well below its long-term average. The same report says EU chemical production declined 3.2% year-on-year in Q1 2026, which points to an industry still dealing with weak demand, low utilisation and expensive inputs at the same time.

That cost position is difficult to absorb in basic chemicals, where scale and energy costs matter a lot. Cefic’s 2025 Facts & Figures report shows how much the global market has shifted: Europe now accounts for 13% of global chemical sales, while China accounts for 46% and has become the EU’s leading source of chemical imports. For European producers, that means the competitive challenge is not only cyclical demand weakness, but a larger shift in where chemical capacity and customer growth are being built.

Germany shows how this pressure is affecting Europe’s industrial base. Reuters reported that Germany’s chemical industry expects production, including pharmaceuticals, to fall 1.5% in 2026, with the VCI warning that weak European demand and the shift of growth and investment toward Asia are hurting the recovery. The same report noted that as customers expand in China and other Asian markets, chemical companies increasingly move production closer to those customers, reducing the export opportunity for European producers.

Company-level data points in the same direction. BASF reported that global chemical production grew in 2025, but the growth was heavily skewed toward China, where production increased 7.0%, while production in the rest of the world declined 0.2%. BASF also reported that Northwestern European gas prices averaged €36.17/MWh in 2025, more than three times the U.S. level of €10.65/MWh, which helps explain why energy-intensive production in Europe remains under pressure.

The pressure is already showing up in capacity decisions. A Cefic-commissioned report by Roland Berger found that announced European chemical plant closures reached a cumulative 37 million tonnes of capacity between 2022 and 2025, equal to around 9% of European production capacity, with an estimated 20,000 direct jobs affected. The same report also pointed to a sharp slowdown in announced new capacity investment, suggesting that companies are not only closing weaker assets but also becoming more cautious about putting fresh capital into the region.

For European chemical companies, the key question is no longer just whether the next quarter improves. The more important question is which parts of the portfolio can still earn attractive returns from a European asset base. Specialty chemicals, application-led formulations and higher-value materials may still make sense where customer proximity, technical service, regulation and quality matter. Basic chemicals and energy-intensive intermediates face a tougher equation because they are more exposed to energy costs, global pricing and competing supply from regions with newer or lower-cost capacity. This is a strategic reading of the cost, utilisation, trade and closure data reported by Cefic, Reuters and BASF.

The impact also goes beyond the chemical companies themselves. Cefic describes the EU27 chemical industry as a supplier to sectors such as automotive, healthcare, construction and consumer goods, and says the sector employs around 1.2 million people. If Europe’s chemicals base weakens, downstream manufacturers may face more import dependence, less local supply flexibility and a different cost position for materials such as plastics, coatings, additives, intermediates and specialty chemicals.

The likely outcome is not that European chemicals disappear, but that the industry becomes more selective. Companies will need to decide which assets are still defensible in Europe and which ones are structurally disadvantaged by energy costs, weak utilisation or Asian capacity growth. The near-term pricing uplift may support earnings for some companies, but it does not change the larger direction of travel: Europe’s chemicals sector is being pushed from a broad production model toward a more focused portfolio and footprint strategy.