The UK chemicals industry — long considered one of the country’s essential industrial sectors — is now navigating what’s being described as a period of steady decline, according to a new report from the Chemical Industries Association (CIA) and consultancy S&P Global. The report lays out a stark assessment of where the sector stands and where it’s headed if significant interventions aren’t made soon.
At the heart of the problem are soaring energy costs. While energy prices have been a concern across Europe, the UK has faced particularly steep increases, making it harder for domestic manufacturers to stay competitive against their international peers. The report highlights that this issue isn’t going away anytime soon, with the chemicals sector likely to remain heavily dependent on increasingly expensive fossil fuels well into the 2050s. This ongoing reliance clashes with both net zero ambitions and the sector’s own sustainability targets, creating a tricky balancing act between operational costs, energy security, and environmental responsibility.
But it’s not just energy prices weighing down the industry. The aftermath of Brexit continues to ripple through UK chemical businesses. The sector’s exit from the EU’s REACH chemicals regulatory framework forced the creation of new domestic systems, resulting in a £2 billion bill for the industry, according to a Defra impact assessment. Beyond the direct financial burden, this regulatory shift has added extra layers of complexity for businesses trading across borders, increasing paperwork, costs, and delays. Coupled with restrictive immigration policies, companies are now also grappling with labour shortages, particularly in skilled technical and engineering roles — positions crucial for innovation, maintenance, and future-proofing operations.
The CIA’s Message
The CIA’s message is clear: without targeted government support and industry collaboration, the UK risks drifting toward the most unfavourable scenario — higher costs, weaker demand growth, and diminished competitiveness on the global stage. To prevent this, the association is calling for better access to competitively priced feedstocks and energy, greater investment in emerging technologies like battery production and carbon capture, and a concerted effort to build a stronger pipeline of skilled workers.
The report underlines that while the UK chemicals sector has the resilience and capability to play a leading role in the country’s low-carbon transition and advanced manufacturing future, it can’t do so without clear, sustained policy direction and investment. Without intervention, the sector risks shrinking, with job losses, reduced exports, and diminished influence in global supply chains. It’s a crucial moment for policymakers and industry leaders alike to re-evaluate their approach, if the UK is to secure a sustainable and competitive future for this vital sector.
Paul Greenwood, ExxonMobil’s UK lead, said that the report was a “stark reminder of what is at risk if we do not act now. The chemicals sector has long been a cornerstone of the UK economy, but without action to ensure a competitive and level playing field, we will lose out to other nations. “Collaboration between government and industry is essential to create an environment that optimises cost to operate, supports investment, and delivers solutions needed to achieve net zero ambitions.”
A government spokesperson said: “We are backing our strong chemicals industry, which exported nearly £32bn last year and is a crucial part of delivering a fairer, greener future and meeting our 2050 net zero target. It will play a key role in delivering our plan for change with investment and reform to deliver growth and more money in people’s pockets. “Our industrial strategy will also focus on the key sector of advanced manufacturing, offering certainty and stability to companies, boosting our competitiveness, and unlocking investments in the industry.”
Change is Needed
The CIA’s message that without targeted government support and industry collaboration, the UK risks drifting toward the most unfavourable scenario is being listened to.
The chemical sector will see ongoing consolidation through mergers, acquisitions, and portfolio restructuring. Already, major players are strategically positioning themselves to capitalise on emerging opportunities.
Chemical companies are feeling the pressure of cost increases. Feedstock and energy prices particularly remain a significant concern, with European gas prices still four times higher than in the U.S. Capacity constraints, fluctuating demand, and geopolitical factors like new tariffs under the Trump administration could also greatly impact profitability in chemical sectors. To navigate these challenges, companies must reevaluate their operations and seek innovative, cost-effective solutions to sustain momentum.
Supply Chain Transformation
The global chemical industry is undergoing a significant transformation, with many companies moving away from heavily globalised supply chains toward more regionalised or localised production models. This shift is driven by a growing need for supply chain resilience in the face of increasingly unpredictable geopolitical tensions, trade restrictions, natural disasters, and public health crises — all of which have exposed the vulnerabilities of long, complex international supply networks.
As a result, strategies like nearshoring, where production is relocated closer to key markets, and friendshoring, which involves partnering with politically aligned and economically stable countries, are quickly gaining traction. These approaches not only help companies safeguard their operations against sudden disruptions but also offer opportunities to cut transportation costs, shorten delivery times, and significantly reduce emissions associated with long-distance shipping — a growing concern as industries move toward stricter sustainability targets.
For chemical suppliers, this trend opens up new avenues to forge strong, region-specific partnerships and reimagine their distribution strategies. It encourages investment in regional production hubs and warehousing solutions that can respond more flexibly to local market demands. Additionally, it creates room for tailored product development, enabling suppliers to customise chemical formulations and packaging solutions that meet the specific regulatory and environmental standards of individual markets.
Beyond logistics and cost efficiencies, regionalised production models can also strengthen customer relationships. Being closer to customers enables faster, more responsive service and fosters collaboration on innovation projects, sustainability initiatives, and product performance improvements. In this evolving landscape, chemical companies that proactively adapt their supply chains, invest in localised infrastructure, and build strategic regional alliances will be better positioned to navigate future market fluctuations and regulatory changes, while delivering reliable, sustainable, and value-driven solutions to their clients.
Changing Customer Demands
Today’s customers — whether consumers, brands, or industrial buyers — are placing greater emphasis than ever on sustainability, ethical practices, and transparency. Environmental, Social, and Governance (ESG) factors are no longer peripheral considerations but central to purchasing decisions and business partnerships. This growing focus is compelling chemical companies to rethink not just what they produce, but how they produce it.
Customers increasingly want to know the environmental footprint of the products they buy, from raw material sourcing to end-of-life disposal. Traceability has become a key requirement, with businesses and regulators alike demanding clear, verifiable records of a product’s journey through the supply chain. Chemical companies are responding by investing in digital traceability tools, blockchain systems, and transparent reporting frameworks that allow them to track, verify, and share sustainability data with customers and regulatory bodies.
At the same time, the ESG agenda is pushing manufacturers to reduce emissions, minimise waste, and improve resource efficiency across their operations. This includes sourcing renewable or recycled raw materials, adopting energy-efficient production technologies, and implementing closed-loop systems to capture and reuse process by-products. While meeting these new standards presents significant operational and financial challenges, it’s also creating valuable opportunities for innovation.
Forward-thinking chemical companies are leveraging this shift to develop greener, safer, and more efficient products that help customers meet their own ESG goals. From bio-based solvents and recyclable packaging materials to low-carbon coatings and biodegradable plastics, the industry is witnessing a wave of product innovation designed to address environmental concerns without compromising on performance, safety, or quality.
This transition isn’t just about risk management — it’s a route to competitive advantage. Companies that successfully embed ESG principles into their portfolios and operations are positioning themselves as preferred partners in increasingly sustainability-conscious markets. In the long run, aligning with these evolving expectations will be essential for securing market access, maintaining brand reputation, and driving profitable, responsible growth in the chemical sector.
Data, Digitalisation, and AI
In 2023, AI was an exciting possibility for many businesses. In 2024, companies began using GenAI for broad applications in research, sales, and product traceability. In the next few years, AI is positioned to become a necessary tool for chemical companies as the drive for efficiency and innovation grows. This time, however, its real potential is in specified applications that are useful to chemical teams.
AI-powered platforms like Nesh provide features like account planning, lead generation, industry or vertical domain expertise, and deep product knowledge to help technical sales teams improve the customer experience. The move toward data and digitisation — especially with the power of AI — is going to become not only a trend, but an indispensable focus for companies that aim to thrive in the changing industry.
Geopolitical Influences
Ongoing global political tensions are having a profound and persistent effect on the chemical industry, disrupting trade relationships, altering regulatory landscapes, and reshaping market access. As we move through 2025, the sector continues to navigate an increasingly complex and unpredictable environment where geopolitics directly influences business operations and strategy.
The aftermath of the closely watched 2024 U.S. presidential election has already begun to ripple through global markets, and its long-term implications for trade policy, tariffs, and international relations remain a major point of uncertainty. Coupled with continuing geopolitical conflicts in regions such as Eastern Europe, the Middle East, and parts of Asia, chemical companies are facing heightened risks related to supply chain disruption, material scarcity, and shifting alliances.
These tensions are not only affecting where and how chemicals are produced and transported, but also which markets remain open or restricted. Export controls, sanctions, and sudden regulatory shifts are becoming more common, leaving businesses to swiftly adapt to protect supply chain continuity and customer relationships. In this climate, market access can change overnight — a scenario that underscores the importance of agility and proactive risk management.
Looking ahead, 2025 is shaping up to be a year of considerable change and pressure for the chemical industry. Companies will need to closely monitor international developments, trade agreements, and evolving regulatory frameworks to anticipate potential challenges and opportunities. Scenario planning, diversified sourcing strategies, and cultivating resilient regional supply networks will become essential tools for maintaining operational stability.
Additionally, there’s a growing emphasis on building strong, politically aware leadership teams capable of interpreting geopolitical trends and integrating this insight into strategic decision-making. In such a volatile environment, staying informed and prepared will be just as important as technical capability or financial strength in determining which businesses thrive amidst the disruption.
the CIA report said that the industry globally was at a “trough”, with weaknesses felt particularly in Europe and Asia where ethylene margins have been virtually zero. This contrasts to the US where ethylene margins are still “acceptable”, owing to the US’s access to relatively cheap ethane as a feedstock for ethylene. Europe and Asia use the more expensive naphtha. Ethylene markets are also impacted by overcapacity in China and the Middle East, where the CIA predicts ethylene production capacity will grow faster than demand.
