Challenges on the rise

The post-COVID recovery stabilized many industries but not petrochemicals. Following a brief period of strong petrochemicals demand in 2021 (artificially driven by re-stoking after 2020 lock-downs), the supply-demand imbalances persists. The industry is subjected to structural oversupply – originating from pre-COVID investment decisions. In addition, high energy costs and geopolitical instability has been affecting the industry since 2022. Utilization rates for key commodities such as ethylene and propylene are expected to remain below historical averages, straining margins, especially for naphtha-based players, lacking feedstock cost advantage. Competition has also heated up as players in China, the Middle East, and North America continue expanding their production capacity, despite global oversupply.

The developments have hit petrochemical companies, and their financial performance has declined sharply. The average return on capital employed (ROCE) fell from 8% in 2019 to about 4% in 2024, while EBITDA margins dropped from 17% to about 12%, limiting reinvestment in decarbonization or downstream integration.

Shareholder returns reflect this decline – between 2019 and 2024, the annualized TSR of petrochemicals was -1% TSR compared with the S&P 500’s 15%. Many players are feeling the pain, especially those in regions without feedstock advantage or market access.

Recognizing this reality, some players have started rationalizing capacity, particularly in Europe. Since 2023, announced closures sum up to 14 million tonnes per annum (mtpa).  Yet more rationalization is needed to restore market balance and support long-term investments – we expect at least 10 mtpa is needed globally in cracker capacity alone.

The consolidation solution

In the current business environment, M&As / JVs offer players access to some crucial sources of advantage:

• Feedstock: to expand their access to traditional feedstocks like crude oil and natural gas (e.g., Wanhua and Borouge JV supported by ethane carriers provided by ADNOC Logistics & Services enabling access to competitive US feedstock)
• New markets: to enter high-growth markets such as Asia-Pacific (e.g., Saudi Aramco invested in Rongsheng Petrochemical, strengthening downstream presence in China while supplying Saudi Arabian crude)
• Technology: to gain access to proprietary technologies that can lower R&D costs or improve manufacturing capabilities (e.g., Celanese acquired DuPont’s Mobility & Materials division)
• Portfolio diversification: to build out their core offerings and create platform for future ventures (e.g., Indorama Ventures expanded into intermediates and surfactants through Huntsman’s business)
• Value chain control: to capture more value upstream, downstream, or both (e.g., Abu Dhabi National Oil Company’s purchase of Covestro enabled downstream entry into high-value polymers and high-performance materials)

Consolidation is accelerating – over 300 deals were announced in 2024, such as Ineos’s purchase of TotalEnergies’ stakes in joint ventures, and more anticipated in 2025, including the Borealis-Borouge merger, set to acquire Nova Chemicals. In Europe we may see a fresh opening with announced portfolio reviews by LyondellBasell and SABIC. Whereas private equity funds may initially take over and rationalize these assets (like AEQUITA in case of LyondellBasell), mid-term we may see some consolidation of remaining European capacities.

Still, commodity petrochemicals – where margins are weakest – remain fragmented, offering the most consolidation potential (Exhibit 1). The key lies in identifying the commodity petrochemicals that can be consolidated for higher-margin applications.

Consolidation also varies across regions. China’s petrochemical sector is the most fragmented due to its size and diversity, meaning domestic moves could reshape global trends. By contrast, Europe, North America (excluding polyethylene), and India (excluding aromatics) are relatively more consolidated.

Predicting the petrochemical future

Over the next decade, the petrochemical industry will see fundamental changes in where value is generated. BCG’s analysis of the next wave of petrochemical consolidation identified three potential scenarios for how these developments could unfold.

In the first scenario, players in feedstock-advantaged regions (e.g., in Middle East and US) and those in growth markets (e.g., India and China) will be the winners. Companies without access to feedstock, competitive cost, or technology advantages would struggle to compete.

In the second scenario, in which Middle East could benefit the most, we would see select national oil companies (NOCs) vertically reintegrating petrochemical businesses to offset the declining demand for transport fuel. By investing into technologies and M&As, NOCs would enhance their global competitiveness and expand global reach.

The third scenario is shaped by protectionism that drives the emergence of regional champions. Rising trade barriers and environmental regulations would encourage countries to build self-sufficient value chains with two to three dominant players in each region. Middle Eastern players would remain less affected as they have easy access to both eastern and western markets, players in Europe and Asia would benefit from flatter supply curves, while US exporters struggle to compete.

How acquirers and acquirees can best create sustainable value

Across all three scenarios, consolidation stands out as the way forward and no petrochemical company can remain passive. Players’ first step should be to map out their strategic chessboard by product and region to determine what their moves could be in the three different scenarios. Whether acquirer, acquiree, or bystander, this role will largely determine the actions they should take, from building M&A pipelines to shoring up defensible niches.

Middle Eastern players could explore opportunities to further double-down on acquisitions as a powerful way for creating long-term value. Given that many companies’ valuations have declined over the past few years, now is a good time to buy. Still, there are multiple factors to consider:

• Pre-transaction synergies: In an environment of fluctuating raw material prices, demand uncertainty, and increasingly complex regulation, value creation in petrochemical M&A hinges on a comprehensive understanding of potential synergies across revenue (e.g., new cross-selling opportunities, enhanced commercial capabilities), and cost (e.g., streamlining logistics and optimizing network, consolidating procurement operations)
• Due diligence: Potential acquirers should view their due diligence through three lenses –  strategic fit, financial viability, and integration feasibility. This involves assessing feedstock advantages, market access, cost structures, funding strategies, and liabilities such as contracts, obligations, or environmental risks.
• Post-merger integration: Clear integration goals are essential—particularly around feedstock, operations, and GTM strategies. Strong leadership, IT and operating model alignment, and proactive communication will accelerate synergies and retain talent and customers.

Consolidation is likely to play a major role in shaping the next era of the petrochemical industry. As the wave continues to build, few companies can afford to stand on the sidelines. Those that act now to prepare for this new landscape will emerge stronger and more resilient in the years to come.