The dominant news in the chemical industry is the painful reality of excess capacity. Supply is so high that it’s crippling profitability, especially for European producers. But behind this supply crisis is an even more crucial question: What’s happening with chemical industry demand?
There’s a growing sense that chemical demand growth is increasingly divorced from the overall GDP growth, which has long been the primary indicator used to assess the industry’s outlook. This traditional correlation is becoming obsolete, forcing us to look at demand from the ground up as it grapples with multiple challenges (Exhibit 1).
Exhibit 1. Key factors impacting chemical industry demand in 2025.
Structural headwinds on consumption
The industry is facing several converging factors that are structurally reducing demand:
First, sluggish end-use markets are suffering. Construction is in crisis globally, and forecasts for U.S. light-duty vehicle sales and housing starts in both 2025 and 2026 are likely to be lower than in 2024. This lack of strength in high-volume sectors like auto and housing only compounds the problem of oversupply.
Second, technological advances like down-gauging (reducing the thickness of plastic) and lightweighting are creating permanent material efficiency, which permanently destroys incremental demand. For instance, packaging companies are using less material to achieve the same function, meaning less virgin polymer is required.
Third, new material streams are actively cannibalizing the market. Polymer recycling and the rapid rise of new bio-based polymers (like PBAT and PLA) are directly displacing the need for virgin fossil-based production. Compounding this pressure, Single-Use Plastic bans and societal backlash against plastic are driving material substitution toward alternatives like paper and aluminum, structurally shrinking the addressable market for polymers.
Where growth opportunities still shine
The outlook isn’t entirely grim, as promising markets do exist. Producers must aggressively shift their focus to markets that exhibit genuine strength.
Specifically, companies with high packaging and infrastructure exposure can sustain volume growth. This benefits polyolefin majors who rely on resilient consumer packaging demand.
Most importantly, the energy transition materials sector is a definite bright spot. This includes high-performance battery and renewable infrastructure polymers needed for electric vehicles (EVs) and new data center construction.
The necessity of regional strategy
Producers must tailor their approach because of the regional divergence in chemical customer needs. A one-size-fits-all strategy will fail.
Oversupply, especially in commodity sectors, is the primary headwind here but there are regional differences in drivers. For instance, Asia offers volume opportunities for certain specialty chemicals, but it faces price headwinds due to manufacturing softness and oversupply. On the other hand, Europe demands cost discipline amid intense import competition.
Conclusion
The industry must plan for a no-growth reality for many commodity products. The oversupply crisis is made exponentially worse by this structural decline in demand drivers. To get a reliable view, the industry must focus on specific downstream sector forecasts—like residential housing starts, infrastructure spending, and vehicle build rates. Future strategies must prioritize higher-value specialties, balance-sheet resilience, and a decisive focus on growing end-markets like energy transition materials and resilient consumer packaging.
– Christine Ho, Panuswee Dwivedi, and Uday Turaga
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