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Opinion: Quo vadis, basic chemicals?

Credit: Associated Press

BASF closed several large plants in 2023 at this site in Ludwigshafen, Germany.

Revenues in the German chemical industry are stagnating, profit margins are falling, and its share of the global chemical market is on the decline. Germany continues to attract the highest amount of direct foreign investment in Europe. But what is the future of basic chemicals in the country, and in Europe more broadly, and what consequences will arise if the decline continues?

The global chemical market has grown rapidly over the past 2 decades. Revenues have risen from about $1.7 trillion in 2003 to $5.6 trillion in 2023, for average annual growth of 6%.

But these huge figures are primarily attributable to China. With average annual growth of 18%, the country increased its share of the world market from 5% in 2003 to 43% in 2023. In contrast, the US chemical market, which was the global leader for decades, was only around a quarter of the Chinese market in 2023.

The European Union’s chemical industry has also seen its share of the global market shrink—from 33% in 2003 to 13% in 2023.

Within Europe, Germany is a chemical powerhouse. The German chemical industry generated about one-third of the sector’s revenue in the 27 countries of the European Union in 2023.

The country’s chemical market is also attractive for foreign direct investment. Analyses conducted by the research firm fDi Markets show that most foreign investment in the EU from 2019 to 2023 was made in Germany. The chemical industry there is similarly successful in export revenues and patent applications at the European Patent Office: it occupies third place in the global country ranking in both.

But the German chemical industry is currently far removed from the impressive development of recent decades. Although sales increased to about $218 billion in 2022 (after a decline during the COVID-19 pandemic), they fell significantly in 2023, to $180 billion, and 2024 sales are expected to come in at about the same level.

Much of Germany’s difficulty is in the commodity chemical segment, where output has been down since the mid-2010s. This is most notable in the production volumes of ethylene, propylene, and chlorine—building blocks with a major share of value creation in the industry—which have each fallen by around a quarter.

Steady decline

Basic chemical production in Germany has fallen since 2015.

Source: Verband der Chemischen Industrie.

Large, energy-intensive plants have been under tremendous competitive pressure in Germany as a result of recent geopolitical challenges. BASF shut down large production facilities for ammonia, methanol, and melamine at its headquarters site in Ludwigshafen in 2023 and is now trying to sell the plants.

In fact, only one major new petrochemical plant has been built in Germany in recent years—an Ineos cumene facility in Marl in 2023.

Worth noting are two large new plants that use biobased instead of petrochemical raw materials: CropEnergies’ plant in Zeitz, which makes ethyl acetate from bioethanol, and UPM’s even-larger facility in Leuna, which makes ethylene glycol and propylene glycol from beechwood.

But overall, investments in basic chemicals have fallen since 2019 from around one-third to one-tenth of all chemical investment. A recent study by Boston Consulting Group and the German trade group Verband der Chemischen Industrie (VCI) on Germany as an industrial location found that 74% of the 300 or so chemical companies surveyed consider it unlikely or very unlikely that they will expand production there.

Those that are investing are putting money into specialty chemicals, which account for around two-thirds of all investment.

Within specialty chemicals, the most interesting growth market is the transition to electric vehicles (EVs). In Germany alone, around 1.5 million EVs were newly registered in 2023—500,000 more than in 2022. But even with these strong growth figures, EVs account for only about 2 million of the country’s 50 million vehicles. Given the German government's plan to increase the number to 15 million by 2030, the growth potential is massive.

The chemical industry already supplies products such as adhesives and plastics to carmakers. As part of the electrification of mobility, companies are adding capacity for anode and cathode materials as well as for electrolytes used in battery cell production. For example, BASF commissioned a plant for lithium-ion battery cathode materials based on nickel, manganese, and cobalt in Schwarzheide in 2023. And AMG Lithium has commissioned Europe's first large-scale plant for battery-grade lithium hydroxide.

EVs open up an additional growth market for the chemical industry through the recycling of batteries. Once they have reached their end of life, batteries can be used as a source of raw material for new battery production via hydrometallurgical recycling. Mercedes-Benz and Primobius commissioned the first recycling plant of this type in Kuppenheim at the end of 2024; Cylib, a start-up backed by Porsche and Bosch, is building another one in Dormagen.

Semiconductor manufacturing is another bright spot for specialty chemical makers. Global semiconductor sales almost doubled between 2012 and 2021, to $584 billion. Germany—especially the Dresden region—boasts facilities run by Bosch, GlobalFoundries, and Infineon Technologies and is the center of Europe’s semiconductor industry. It has been able to secure more than half of all new EU microchip projects, including a recent investment by Taiwan Semiconductor Manufacturing Company, better known as TSMC.

The semiconductor industry requires several dozen chemicals and gases in large quantities and extremely high purity. Wacker Chemie has expanded a plant in Burghausen that treats hydrogen chloride gas to a purity level of 99.9995%. And Silicon Products built a plant in Bitterfeld that makes high-purity silicon carbide.

The brisk investment activity in specialty chemicals shows that this segment is adept at reacting to external influences. Developing and producing specialties requires employees from a range of disciplines and with a deep understanding of customer industries; companies that are successful can generate margins that allow them to continue to operate profitably.

But producing specialty chemicals requires certain essential chemicals. And if chemical companies in Germany are to continue making those building blocks, they will need lower prices for electricity and other forms of energy. Reducing energy prices for industry is a must-do task for the new German government, which was elected Feb. 23.

As it has in previous difficult periods, the chemical industry will use its innovative potential to overcome challenges and develop products for new markets. Yes, production capacity with sensitive cost structures will continue to leave industrialized countries. But its specific strengths—particularly its high level of innovation, productivity, and resource efficiency—will allow Germany to remain an attractive location for the industry.

A portrait of a person in business attire.

Credit: Courtesy of Thorsten Bug

Thorsten Bug is the senior manager for chemicals with Germany Trade and Invest, the official investment promotion agency of Germany, where he advises foreign chemical companies on securing access to the country. Bug joined the organization in 2008.

Views expressed are those of the author and not necessarily those of C&EN or ACS.

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CORRECTION:

This story was updated on March 18, 2025, to correct the photo credit. The photo is from the Associated Press, not BASF.

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