The chemical industry is currently grappling with significant challenges, including overcapacity, elevated energy costs, and weaker global demand. Record high energy prices in Europe have significantly decreased the competitiveness of European chemical producers, compared to the US and Middle Eastern counterparts with access to abundant natural-gas liquid feedstocks. Elsewhere, China’s real estate bubble, aging population, and escalating trade tensions with the West have all resulted in slowdown of demand.

Overcapacity in key markets has led to intensified competition and eroded profit margins. This oversupply, combined with sluggish demand recovery in developed regions, has put additional pressure on production levels and market dynamics. The imbalance is driving major plant closures, particularly in regions facing competitiveness challenges. Notable plant closures include the Gravenchon plant closure by ExxonMobil, Sabic’s closure of one cracker unit and planned closure of other five units in Netherlands, and LyondellBasell’s planned closure of polypropylene units in Italy, Spain, UK and Germany.

In response to a challenging business environment, chemical companies are adopting new strategies to drive growth and enhance profitability. Some are focusing on expansion into new and emerging markets to tap into untapped opportunities. Others are shifting towards production of specialty and innovative chemical segments, which offer higher value and profitability.

Companies in the chemical space are increasingly adopting policies to diversify supply chains. Key differentiators, such as forming partnerships with emerging demand hubs in India and Southeast Asia, prioritizing circularity, and targeting critical end-use sectors globally, can provide a competitive edge in a market challenged by overcapacity and slowing demand. In the short to medium term, Saudi Arabia (KSA), the United Arab Emirates (UAE), India, Oman, Vietnam, Indonesia, and the Philippines are primed to become important locations for manufacturing investment. In the long term, another important manufacturing destination will be Africa, thanks to the pro-developmental principles established by the African Union. Despite the current challenges China is facing, BASF expects China’s global chemical market share to be above 50% by 2030 and to contribute 75% of chemical production growth by 2035. Recent developments and strategic move by the Chinese government indicate that domestic companies are investing heavily in R&D and prioritizing new chemicals for emerging applications. Investments by companies such as AkzoNobel, Arkema and Clariant include several new chemicals and materials such as high-performance coatings, battery materials, halogen-free flame retardants among others.

Figure 2: Chemical production and capacity trends (Source: BASF, Frost & Sullivan)

Figure 3: Top three mega trends (Source: Frost & Sullivan)

In the coming decade, the chemical industry will be profoundly influenced by three interrelated mega trends. Sustainability continues to be a top challenge. The reduced demand for fossil-fuel-based chemicals will be partially offset by increasing demand for sustainable alternatives. For instance, P&G aims 100% recyclable or reusable consumer packaging by 2030 and reduce use of virgin consumer packaging by 50% in the same period. Clear indications of a future shift are already emerging in Europe, where a segment of the market is expected to be specifically dedicated to sustainable production. At the same time, technologies such as AI will create enormous opportunities – alongside product development activities, there is pressure to optimize value chains through digitization. Finally, the current geopolitical tensions will have several knock-on effects on the industry. One visible outcome is the interest in localization. Advances in digital and automation technologies are increasingly making this feasible, so more chemical plants in the future will no longer be world-scale, but smaller, more flexible, closer to the customer, and in many cases even more cost-effective than the world-scale plants that they will replace.

Rising forces: Future of the GCC chemical industry

Historically, the GCC region’s chemical industry witnessed tremendous growth driven by various factors including abundant and affordable feedstock, high oil prices, and rising Asian demand, thus leading to attractive profitability for petrochemical firms.

The strategic importance of the industry has been increasing steadily given its criticality in enabling strategic sectors of focus as governments prioritize diversification away from oil dependency. These include established end sectors such as construction and infrastructure, wherein the region is witnessing investment in multiple mega and giga-projects, further bolstered by the recent announcement of the FIFA World Cup to be held in the KSA in 2034; as well as emerging sectors such as automotive and renewable energy.

Figure 4: Key End Industries and Opportunities for Growth (Source: Frost & Sullivan)

Construction: Construction chemicals demand is expected to rise at ~5% over the next decade in the region. Concrete admixture and cement additives are expected to witness high growth while insulation will benefit from increasing awareness about advantages such as energy savings, noise reduction, and improved indoor air quality. Additionally, advancements in construction technology and higher FDI are anticipated to boost demand for adhesives and sealants. Investments in the sector will also drive demand for coatings, with specialty coatings such as abrasion resistance, thermal barrier and antimicrobial gaining traction.

Packaging: The plastics conversion industry is predominantly located in the KSA and the UAE, together accounting for 85% of the production. The region’s sustainability focus will boost the use of recycled content in packaging, following Europe’s lead. Concurrently, efforts to develop plastic recycling infrastructure and structured regulations are underway, driven by increasing consumer awareness. Overall, plastic packaging is expected to grow by an estimated 4%-5% over the next decade, driven by investment across sectors including, food and beverage, industrial, FMCG, automotive, and e-commerce, among others.

APIs: The demand for active pharmaceutical ingredients (APIs) in the GCC is expected to grow at 6%-8% to year 2035 mainly driven by government initiatives aimed at enhancing healthcare infrastructure through partnerships with pharmaceutical companies. In the medium term, there will be significant growth in local generic API manufacturers aimed at self-reliance. The primary challenge to overcome would be availability of raw material, given that a majority of them need to be sourced from China. Additionally, it would be crucial to establish an ecosystem where different molecules are manufactured in proximity within a centralized hub.

Advantaged feedstock is of the critical enablers for basic chemicals, however, a stronger emphasis on R&D, access to skilled labour and technology will be imperative for transformation. Automation, digitalization, and AI-based systems to streamline operations, improve safety, and optimize resource use are at a nascent stage but will be a focus area. Going forward, the region must capitalize on its strength in basic chemicals and focus on investments across intermediates and specialties to develop integrated value chains to unlock new opportunities and ensure sustainable long-term growth.

For e.g., the development of the Electric Vehicle (EV) value chain has been of prime strategic importance across GCC countries. Multiple investments such as Ceer and Lucid in the KSA; Mays Motors in Oman; M Glory, Statevolt and NWTN Motors in the UAE have been announced in the recent past. In order to create raw materials for the EV value chain, multiple investments have been witnessed in the battery chemicals segment such as TAQAT, in partnership with Novonix, for graphite anode materials facility; European Lithium and Obeikan for a lithium hydroxide facility; and EV Metals to construct a lithium hydroxide facility in the KSA.

The momentum for strategic investments in the chemical industry is evident in the GCC, with several investments announced that strengthen the availability of basic chemicals and enhance the competitiveness of producing value-added chemicals. There will be an increased focus on strategic value chains in line with sustainability trends including EVs, green hydrogen and Carbon Capture Utilization and Storage (CCUS). Over the next decade, the region is anticipated to witness more investments, driven by both international and local companies. Partnerships will facilitate exchange of knowledge which will boost the global competitiveness of the region.