The chemical industry has made moderate progress in 2024, increasing year-over-year production above 2023 levels, and it is estimated that production levels will continue to rise as the destocking cycle wanes and demand rises across most products.1 However, to further support revenue growth, chemical companies have announced cost-reduction plans and begun to increase margins, while continuing to invest in decarbonization and innovation.2 In 2025, we expect the industry to continue its recovery, adjusting to new market drivers while balancing short- and long-term goals.
Since the COVID-19 pandemic began in 2020, the chemical industry has had to navigate turbulent market conditions. The pandemic led to weak demand, reduced production, and lower revenues in 2020. This was followed by a strong rebound in chemical production and revenues from 2021 to 2022, as demand rose, and fear of supply chain issues led to higher levels of inventory stocking. But by late 2022, supply chain issues began to wane, key end markets began destocking, and demand for chemicals declined. By the end of 2023, revenues decreased 8% year on year, operating margins fell to their lowest level since the Great Recession (2007 to 2009), and returns on capital dropped back to pre-pandemic levels.3 These dynamics highlighted a need for greater resilience spurring cost reduction programs. While these cost-reduction programs are still rolling out, margins began to rise in the first half of 2024 (figure 1).4
Looking ahead, moderate growth is expected to continue in the chemical industry in 2025. The American Chemistry Council (ACC) projects global chemical production to rise by 3.4% in 2024 and 3.5% in 2025, after increasing just 0.3% in 2023.5 However, even with chemical production improving and margins reverting to average levels, the industry still faces challenges and uncertainty. In the next year, chemical companies will navigate many of the same challenges as other industries: evolving macroeconomic conditions, shifts in policy and regulations across regions, changing customer preferences, and advances in technology. To help improve their positions in the face of these uncertainties, chemical companies could consider adopting strategies that help them weather uncertainty while positioning themselves competitively in the low-carbon, high-tech future.
To plan for the future, companies should consider developing an understanding of where they stand in the current scenario. This can provide them with a foundation for examining the emerging trends that may shape the industry's trajectory in the coming years. Our 2025 Chemical Industry Outlook explores some of these trends and highlights the signposts leaders should consider while developing strategies.