By: Olaf Gierlichs-Steffens
Senior Underwriter at Atradius
The chemical industry is poised for growth over the next two years, despite being amongst the worst impacted by the 2022-2023 energy crisis. The sector heavily relies on energy, and as natural gas and electricity prices surged, production costs for chemical companies spiked, leading to reduced profit margins. This uncertainty and volatility led many companies to postpone investments in new projects or technologies, impacting long-term growth opportunities.
However, this year, we are seeing a rebound in the U.S. and Western Europe that has gained momentum. Global production is expected to increase by 2.9% in 2025 and 3.3% in 2026. The United States is looking at a fair outlook for the next two years – with an expected increase in output of 3.8% in 2025 and 2.7% in 2026, compared to the U.K.’s expected 1.7% in 2025 and 1.2% in 2026.
While these numbers are promising, countries in the Asia Pacific region continue to have some of the strongest outlooks. India, in particular, may see 6.4% growth in output in 2025 and 10.9% in 2026, driven by factors such as demographic advantages, technological innovations, trade and economic policies, and urbanization.
Strengths and Growth Drivers
Growth in the chemicals industry in the next couple of years will most likely be driven by increasing demand for advanced materials and sustainable solutions. Innovations in advanced materials – such as nanotechnology and high-performance polymers – are expanding the applications of chemical products. These materials offer superior properties that enable new solutions in sectors like electronics, healthcare, and automotive.
At the same time, the demand for sustainable chemical products is growing, driven by consumer preferences and regulatory pressures. In response to this, companies are investing in green chemistry and decarbonization to meet these demands. These efforts not only help the environment but also open up new market opportunities.
Additionally, the expanding middle class in emerging markets is boosting the demand for consumer goods, housing, and infrastructure. This surge in demand drives the need for chemicals used in construction, packaging, and everyday products, thereby boosting industry growth.
Constraints & Downside Risks
While global production is expected to grow around 3% annually, there are some risks for this sector, including reliance on energy prices and supply chain disruptions.
The chemical industry relies heavily on energy, particularly fossil fuels, for both production and raw materials, making it vulnerable to energy price fluctuations – which significantly impact operating costs and profitability. We saw this during the energy crisis of 2022-2023 when high prices led to increased production costs and reduced profit margins.
The industry also relies on complex global supply chains for raw materials and distribution. When disruptions – like geopolitical tensions, natural disasters, or pandemics – happen, they can lead to shortages, delays, and increased costs. The pandemic and the Russia-Ukraine conflict, in particular, caused significant operational challenges, highlighting the fragility of these supply chains.
What’s Driving Higher Growth in the Asia-Pacific Region?
The Asia-Pacific region is benefiting from a large, growing population, with a substantial portion entering the workforce. This demographic shift leads to increased productivity and consumer spending.
Additionally, the region is investing heavily in technology and innovation, particularly in sectors like digital infrastructure, renewable energy, and manufacturing. These investments enhance productivity and create new economic opportunities.
Many Asia-Pacific countries have also adopted favorable trade policies and economic reforms that attract foreign investment and boost domestic industries. Rapid urbanization in the region is also fueling increased demand for construction, transportation, and services.
Impact of the U.S. and U.K.’s Projections on Their Chemical Industries
The increase in production in the U.S. chemical industry will lower energy prices and domestic resource availability, resulting in enhanced cost competitiveness. To sustain growth and competitiveness, continued investment in innovation and sustainability will be crucial.
In comparison to the U.S., the U.K.’s chemical industry is expected to see steady, albeit slower, growth. Companies will need to focus on efficiency and innovation to remain competitive, and there will need to be a continued emphasis on sustainability and decarbonization efforts to meet regulatory requirements and consumer expectations.
Overall, while the U.S. is poised for moderate growth driven by strong domestic demand and favorable policies, the U.K. faces a more challenging environment with slower growth projections. Both countries will need to navigate these dynamics to ensure the continued success of their chemical industries.
Potential Impact of U.S. Tariffs
The imposition of U.S. tariffs could have several significant impacts on the global chemical industry in 2025 and 2026:
Increased Costs: Tariffs on imported raw materials and chemicals can lead to higher production costs for chemical companies, reducing profit margins and increasing consumer prices.
Supply Chain Disruptions: Tariffs can disrupt established supply chains by making it more difficult and costly to import necessary materials, leading to delays and inefficiencies in production.
Market Fragmentation: Tariffs can fragment international chemical markets, reducing efficiency and creating barriers to trade. This can lead to a less integrated global market and hinder the flow of goods.
Retaliatory Measures: Countries affected by U.S. tariffs may impose their own tariffs in response, potentially sparking a trade war and further complicating international trade – which will negatively impact the chemical industry.
Competitive Disadvantages: High tariffs may put companies at a competitive disadvantage compared to those in regions with lower tariffs, affecting their ability to compete globally.
Overall, the imposition of tariffs can create a challenging environment for the global chemical industry, affecting costs, supply chains, market integration, and competitiveness.
