Lower demand in China is changing global chemicals markets: Opportunity or threat?

The pace of domestic demand growth in China remains slower than anticipated following a short-lived post-pandemic spending boom. The implications for the global economy—including the chemicals industry in which China has become a major player across multiple market segments—are widespread and significant. 

The Chinese chemical industry has developed into both a major source of growth and a destination for investment over the past two decades, resulting in increased capacity and a steadily rising global market share for Chinese production. The energy transition led many Chinese energy companies to invest heavily in integrated refinery-petrochemical complexes in anticipation of plateauing demand for refined fuels.

These mega-chemical facilities produce olefins and aromatics; primary building-block feedstocks for the production of derivatives used in the majority of chemical segments. In addition, over the last five years, China has strategically focused its chemicals production downstream into specialty chemical production to fulfill rapidly growing domestic consumption, along with export opportunities. 

However, as Chinese domestic demand cools, global chemical companies that export to China are experiencing an immediate downward pressure on demand. This sets the scene for shifting competitive industry dynamics for Western chemical suppliers, as Chinese companies look outward for further growth opportunities. 
 

Recent calm before the storm

From 2020 to 2022, Chinese influence on the global chemical industry was relatively subdued due to logistical challenges, geopolitical tension, and China’s zero-COVID-19 policy. These issues made it difficult for Chinese products to amass considerable global volume. More recently, the threat of Chinese imports for European chemical companies has been blunted by conflicts in the Red Sea.

Relief is likely to be short-lived if Middle Eastern geopolitical tensions de-escalate. Furthermore, Chinese chemical exports could enjoy a significant tailwind from a 60-70% decline in freight costs from China to Europe since peaking in 2021. This would lower the long-term barrier for Chinese exports entering Western markets (Figure 1).
 

Considering lower domestic demand, significant capacity build-up, and easing logistics costs for the Chinese chemical industry, AlixPartners has analyzed how much China could influence a shift in global chemical industry dynamics by analyzing over 500 public and private global chemical companies across major market segments (see full analysis below). We assessed the potential for a shift across each market segment using four dimensions: 

1. Market share: Current market share of China-based companies’ revenue (% share of global industry peers)
2. Market share growth: Growth rate of China-based companies’ market share in the last five years
3. Export share: China’s export value share of the global markets
4. Export share growth: Growth rate of China-based companies’ export share in the last five years

For market segments at high risk of a shift in dynamics, China is not only gaining market share, but significantly expanding exports to challenge established market players in other regions.

Understanding China’s influence on industry dynamics 

The ups and downs of China’s economy have reshaped the global chemicals industry, and the impact of China’s economic headwinds are only now beginning to be felt globally. By understanding risk exposure across the industry, leaders and investors can better position themselves to take strategic actions and navigate their companies and portfolios across this new wave of ever-evolving market realities.

For more on how leaders can understand risk exposure and take strategic our actions, read our in-depth analysis here.