The global chemicals industry must shut down a net 35 million metric tons of olefin production capacity by 2030 — equivalent to about 7.5% of global capacity — to restore normal operating rates, according to a new report by Bain & Company.

Despite record plant closures, chemical plants are expected to operate below historical utilisation averages through 2030, with demand growth alone unable to absorb the industry’s growing surplus capacity, the report said.

In its report, Chemical Companies Don't Have to Settle for Managed Decline, Bain describes the downturn as a structural reset rather than a conventional market slump. 

Persistent overcapacity is squeezing margins, while widening feedstock cost differences are creating sharp divisions between producers. China’s aggressive capacity expansion and growing strength in specialty chemicals are adding to the pressure on established players.

The price surge following the Iran conflict has created a temporary opportunity for companies to rethink their strategies. But Bain warned that treating the supply shock as a sustained recovery could cause producers to miss a critical window for change.

"The chemicals industry's old downturn playbook of cutting costs, protecting the balance sheet, and waiting for demand to recover, is no longer feasible. This time, demand growth alone won't absorb the excess capacity. At the same time, the price spread between ethane-based and naphtha-based plants is becoming increasingly difficult to navigate," said Piet de Paepe, global head of Chemicals practice at Bain & Company. 

"Companies need to be much more selective about where they compete, concentrating investment in products and regions where they can establish a clear advantage, rather than waiting for the next cycle to turn."

China’s capacity surge outpaces global shutdowns

Capacity cuts across Europe, South Korea and Japan are failing to keep pace with China’s expansion, leaving the global industry grappling with a persistent supply glut. In some products, Chinese capacity alone already matches or exceeds total global demand.

The longer plant closures fall short of the required levels, the longer margin recovery will be delayed. The imbalance is expected to deepen as the lowest-cost producers continue to strengthen their competitive position.

Feedstock economics are further widening the divide. Gas-based plants have a lasting cost advantage, with US ethane expected to remain roughly $300 to $400 per ton cheaper than Asian naphtha.

More than half of the cracker fleets in Europe, Eastern Asia and Southern Asia rely on naphtha, leaving them particularly exposed to the cost gap. The United States and the Middle East are better positioned to benefit from cheaper ethane-based production, although their reliance on ethane also leaves them vulnerable to supply disruptions.

China targets high-margin specialty chemicals

China’s advance is no longer confined to bulk chemicals. Its growing competitiveness in specialty chemicals is challenging Western producers in a segment traditionally valued for its higher margins.

By 2030, China is expected to account for more than 30% of the global specialty chemicals market, overtaking either North America or Europe individually.

Chinese companies are also moving beyond price-led competition. They are spending more on chemicals research and development than their US and European counterparts while improving time to market, customer service and strategic partnerships to accelerate expansion into specialty products.

Producers are increasingly targeting higher-value segments, building on rapid growth in products such as carbon fiber.

China’s surplus set to reshape global trade

The shifting balance of capacity and costs is redrawing the global chemicals industry, with regional economics and policy increasingly influencing returns alongside production costs.

By 2030, nearly 70% of global ethylene capacity is projected to be concentrated in China, the Middle East and North America, according to Bain. High-cost plants in Europe and Northeast Asia are expected to continue closing.

China is also set to become a net exporter of most base chemicals, putting its surplus at the centre of global trade flows and margin dynamics. As a result, global market conditions will increasingly be shaped by China’s excess supply rather than demand from Western markets alone.

Bain urges urgent portfolio overhaul

Against this backdrop, Bain says chemical companies must abandon strategies built around waiting for the next market upturn and instead focus on areas where they can establish a durable competitive advantage through cost leadership or innovation.

That means reshaping portfolios, exiting or consolidating businesses without a credible path to competitiveness, and using mergers and acquisitions to build scale, reduce costs and strengthen positions in more attractive specialty markets.

The report also calls for a clean-slate review of costs and geographic footprints, including companies’ exposure to China.

Decisions on closing or converting high-cost, carbon-exposed assets should be made within the next 12 to 18 months, Bain said, warning that the opportunity to reset operations may not remain open indefinitely.