Leader: It's time to protect critical industries as well as critical minerals

BY STEVE RANGER

The disruptions of 2026 have highlighted the vulnerabilities in the global chemical industry and how wider industrial resilience depends on it. When chemical production is disrupted, the effects ripple far beyond the sector itself.

This year, a fragile economic situation, international conflicts and extreme weather have all put pressure on demand, international trade and broader supply chains. Some of these pressures may pass, but others point to a persistent problem: the erosion of capacity and investment in an industry that many sectors rely on.

The scale of the slow-down is already clear. Global chemical production is expected to grow by just 0.5% this year, according to the American Chemistry Council (ACC), reflecting disruptions to chemical production around the world.

The picture in the US shows how closely chemicals are tied to wider industrial performance. The ACC expects that US chemical output volumes will rise only by 0.5% in 2026, with only 12 of the 20 key chemistry-consuming industries expected to expand this year (admittedly better than the nine that grew last year). Growth is concentrated in sectors linked to data centres (namely, semiconductors, computers and electrical equipment), aircraft, oil and gas, and pharmaceuticals. By contrast, industries linked to residential construction remain weak. There are about 16 tons of chemical products in the average family home built in the US, meaning that customer confidence and housing spending (along with automotive, another big user of chemistry) are important drivers of chemical industry growth.

Meanwhile, Europe’s chemicals industry continues to struggle, with high energy costs and intense competition leaving many companies facing historically low utilisation rates and declining production – driving concerns that recovery may be challenging. And once that capacity is lost, it’s almost impossible to rebuild.

The German Chemical Industry Association – VCI – said in its mid-year report that while the first half of 2026 saw better performance that than the second half of 2025, production still dropped by about 3%, compared with the previous year and sales were down 1% to €106bn, with investment declining for the third year in a row. Fixed asset investment is now around 15% below its 2023 level, while in the UK, nearly half of chemical companies had delayed, reduced or cancelled planned investments, according to a separate survey. Without enough investment in new plants and future technologies, Europe risks losing capacity just as chemical production becomes more strategically important.

And these aren’t the only challenges faced by Germany’s chemical industry: the water level in the Rhine, essential for transporting raw materials, has dropped to a historic low, complicating supply chains further (see page 5).

These international pressures are impacting margins, investment and merger activity (see page 17). However, the outlook for next year is perhaps more positive, especially if some of the economic turbulence that has marked 2026 begins to subside. US chemical production volumes are expected to increase by 1.5%, the ACC predicts, and as supply chains normalise, global chemical volumes are expected to grow by 3.2%.

But a return to growth will not remove the deeper pressures facing the industry, particularly in Europe, where high energy costs, regulation and weak investment threaten competitiveness and capacity.

In this context, recent developments around critical minerals might be a useful comparison. As we report elsewhere in this issue, many countries are realising that guaranteed access to critical minerals (including rare earths) is now essential for both industrial success and national security. The quantities of these minerals and rare earths required might be relatively small, but the impact of their absence can be huge, making control over access a powerful geopolitical lever.

The same logic applies to chemicals. Securing access to key materials is of little use if countries lack the industrial capacity to turn them into products. We should remember that there are critical industries as well as critical minerals – and chemical production is one of them.