Relocation of Chemicals Production Footprint in Full Swing
A new Horváth study based on interviews with CxOs of Europe’s top chemical corporations reveals: The majority of board members expects no or only weak growth for the current year, and economic recovery is not in sight before 2026. However, the industry still backs decarbonization and the green transition. Although cost optimization and production relocations have gained in importance – and will become even more relevant since the tariff escalation – green transformation remains one of the top management priorities, alongside digitalization and AI.
Author: Peter Hartl, Associate Partner, Horváth
European Chemical Companies are Not Anticipating Significant Recovery for 2025
After a challenging business year in 2024 ("lost year"), leading European chemical companies are not anticipating any significant recovery for 2025. A cautiously optimistic outlook is only expected in the second half of the year, provided that a global trade war or a lack of economic recovery does not disrupt the forecast.
The chemical industry is highly dependent on consumer sentiment, as nearly all consumer goods contain chemicals, at least indirectly. Consumer sentiment is strongly influenced by psychology. The threat of trade wars due to global tariffs and news of restructurings and job cuts are dampening consumer sentiment, particularly in Germany and Europe. Additionally, Europe faces major structural issues: high energy and personnel costs, an aging society—consumption is mainly driven by younger target groups—and excessive regulation, which has not yet been significantly reduced.
Relocation of production footprint is in full swing
Due to these structural challenges in Europe, the chemical industry is diligently working on structural adjustments to production networks and supply chains. "Supply and production footprint optimization" is the management topic that has gained the most importance compared to the previous year, moving up six places to fourth in the ranking. This primarily involves relocating production. Capacities are being adjusted in Europe and newly established in growth regions. Relocating functional areas is also "back on the table”, considered by more and more organizations.
The majority of board members and executives of leading European chemical companies surveyed are optimistic about achieving a profit increase of at least five percent in 2026. Positive factors include normalized purchase prices and stabilized, more predictable energy prices. Additionally, significant efforts in cost optimization are paying off. Regarding the German market, it is expected that both the funding package passed by the German government and consumer preference for products manufactured in Europe will positively impact the business development of companies in the chemical industry based here, as the defense industry is also indirectly dependent on chemical products.
According to the interviewed managers, the growth forecast for 2026 onwards will primarily affect net profit (bottom line) and be achieved through rising volumes rather than price increases. Companies expect production costs to remain high due to high material and energy prices. To remain internationally competitive, they cannot increase sales prices, hence the strong focus on cost optimization. Compared to the previous year, the topic of "improving cost and revenue structures" has risen two places in the ranking of the most important management priorities and is in first place for 2025. There is no alternative to cost optimization, which is necessary as a basis for creating financial flexibility, building resilience, and preparing for the future, and it is already being implemented in organizations as part of programs. The most important future and growth topics for the decision-makers surveyed are Digitalization & AI as well as Green Transformation.
The “green transition” remains one of the most important management priorities
Even though it has slipped from second to third place, three-quarters of the board members and executives surveyed believe that their business development will be strongly influenced by decarbonization, the circular economy, and climate neutrality. "Future business models will be fossil-free or at least carbon-neutral. The use of renewable energy will replace fossil fuels in the medium to long term. For the chemical industry, this is not an idealistic idea or a heartfelt wish, but simple business math. European chemical companies aim to gain a long-term international competitive edge. However, due to challenging framework conditions and political uncertainties, major investments are currently still being postponed. Excessive regulation in sustainability is also having a counterproductive effect.
AI finds its way into core business areas
The strategic importance of "Digitalization & AI," particularly the increased use of AI technology, has grown compared to 2024. As a top management priority, Digital Transformation ranks second in this year's ranking—four places higher than previously. Technology is not only permeating internal processes but also core functions and areas, such as production planning and sales, particularly in pricing. AI will also play an increasingly important role in decision-making for maintenance. With the help of AI, maintenance cycles can be optimized through better forecasting, and spare parts can be reordered automatically with pinpoint accuracy. Alongside Green Transformation, Digitalization is the key management topic for the future and growth, and the industry will make further significant progress in the coming months.
About the author
Peter Hartl is an Associate Partner at the international management consultancy Horváth with a proven track record in large-scale corporate transformation projects in the chemistry and energy sector. For many years, he has been advising companies in the energy, chemical, oil, and raw materials industries on sustainability, decarbonization, and circularity. In recent projects, he has worked on hydrogen, carbon management, energy management, geothermal energy, and the green transformation of existing production facilities. Hartl studied chemistry and biology at LMU and business biology at TU Munich.
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