Average US tariffs surged from 2.4% at the start of the year to a peak of 28% in April before settling at 16.8%—the highest level since 1935. This sharp increase has weighed heavily on global trade flows, undermining confidence and delaying investment decisions. For chemical companies, the implications are stark: export-driven business models that dominated for decades are now under threat.
Regionalization as a survival strategy
Across the industry, a shift toward more local or regional supply chains is gaining momentum as companies reassess business models to reduce exposure to geopolitical risk and tariff volatility.
European producers, already under pressure from weak demand, face additional challenges as the pending US-EU trade deal could eliminate tariffs on US finished goods and chemicals such as polyethylene (PE), which is currently subject to a 6.5% tariff.
US PE exports to Europe have already rocketed as the country ramped up its ethane-based capacities.
At the same time, Chinese exporters may target Europe as an alternative market if US barriers persist, raising the risk of oversupply.
There are calls for more regulatory protection for European industrial value chains, including chemicals. There is a risk the region may become too reliant on imports rather than having a resilient domestic industrial backbone.
Chemicals projects under pressure
Despite these headwinds, some large-scale projects are moving forward. Borealis’ 750,000 tonnes/year Kallo, Belgium, propane dehydrogenation (PDH) unit is scheduled to start up in Q2 2026, while INEOS’ Project One cracker is expected online by early 2027.
Together, these ventures will add significant olefins capacity to a market already grappling with overcapacity. Meanwhile, Grupa Azoty’s $1.8 billion PDH-polypropylene project faces uncertainty after its special-purpose vehicle filed for bankruptcy protection.
The question is whether Europe can sustain these investments amid structural change. Consolidation appears inevitable, with a handful of efficient players likely to dominate. INEOS, leveraging US ethane feedstock, could emerge as a low cost producer in Europe, while others may shutter more assets deemed uncompetitive.
