Five Forecasts for Global Chemical Markets in 2026

LAST WEEK, I gave myself a score of three out of five for my five predications for global chemical markets in 2025. Here is this year’s five forecasts which I will again mark when the year is done.

1. China’s Continued Self-Sufficiency Push

I expect China to move fully into net‑export territory for PP as self‑sufficiency also rises in other chemicals and polymers. This is the logical outcome of years of state‑driven capacity additions combined with weak domestic demand. The property downturn, an ageing population and high youth unemployment will continue to weigh on domestic spending.

2. Developing World Outside China to Gain More Attention

As China’s role shifts from buyer to seller, other chemicals exporters will look harder at the rest of the developing world. With more than 5bn people, the Developing World ex‑China represents the next frontier for chemicals demand growth.

The US will huff and puff and seek to blow the house down by threatening tougher trans‑shipment and rules‑of‑origin regulations aimed at economies such as Vietnam, which are largely booming by importing components from China — such as PP — and exporting finished goods to the US. But, as with the rest of the trade war, the huff and puff will be followed by compromises and an almighty muddle.

The huff and puff won’t prevent China from more aggressively competing in PP and other chemicals and polymers in markets such as Southeast Asia, Africa and Latin America.

But producers from elsewhere will make some gains among the finished‑goods manufacturers who pre‑emptively revise their sourcing strategies to avoid Chinese chemicals and polymers.

More broadly, demand will continue to boom in Africa, India, Turkey and Latin America on youthful populations and on the relocation of the China–US export trade to other countries. China will also continue to shift low-value manufacturing to the rest of the developing as it also invests more in the region’s infrastructure, which will further boost growth.

Crucially, the size of the net‑import prizes in countries such as India for some products — again such as PP — is now bigger than China.

But, of course, competition will be fierce. Expect producers to pore over every detail of pricing trends, downstream investments, FIDs, freight rates and trade flows as they try to get ahead of the rest. Good analysis of the developing world outside China will become more of a premium product.

3. My Chosen Scenario for the Global Economy

From the three I presented last week, here it is:

The Illusion of Resilience

On the surface, the world economy seems remarkably stable given the upheavals of 2025 — soaring tariffs, rising geopolitical tensions and unprecedented fiscal interventions. But beneath the calm, cracks are spreading.

Key Drivers

• Tariff trauma delayed, not defused:
  The US tariff hikes and China’s retaliation in 2025 were softened by exemptions and fiscal stimulus. But those buffers are eroding. Tariff costs are now filtering through — raising inflation, squeezing household budgets and quietly sapping growth momentum. In the US, tariffs have added 0.7 percentage points to inflation and cost the average household $600.
• AI props up growth — for now:
  Investment and optimism around AI continue to support economies such as the US, Taiwan and South Korea. Monetisation is improving, especially through productivity tools and AI‑enhanced advertising. But investors are growing wary of lofty valuations disconnected from near‑term profits. Prompts cost money, and the $20‑a‑month model won’t cut it forever.
• Fiscal muscle hides structural fragility:
  Governments — notably Germany, China and the US — maintain expansionary fiscal policies to offset trade disruptions. But this approach is running out of road as debt burdens rise and stimulus fatigue sets in.
• Europe plays the adult — but alone:
  The EU continues defending global rules and regulatory sanity. However, internal reforms lag. Quiet moves toward decoupling from US financial infrastructure hint at deepening distrust.

AI Outlook

• Deployment continues at a cautious pace. Guardrails such as grounding layers and curated data pipelines help prevent the dreaded hallucination feedback loop, maintaining public trust.
• Sectors like software, logistics and professional services see gradual AI‑led productivity lifts, though returns remain lumpy and concentrated.

Markets

Equities grind higher, with the S&P 500 up mid‑single digits, supported by resilient earnings in AI‑adjacent sectors. Valuations stay elevated but plateau. Chip demand holds steady, though broader enthusiasm cools.

4. No Quick Escape from Oversupply

The chemicals industry remains stuck in a prolonged downcycle. Operating rates are well below historical norms, and the closures needed to restore balance are enormous. China will keep adding capacity, while advantaged projects in the Middle East are unlikely to slow.

This means more pain for high‑cost producers in Europe and Northeast and Southeast Asia. Expect another year of restructuring and rationalisation. But this won’t be enough to bring the downcycle anywhere near the end.

By the end of 2026, the consensus among producers will be no return to the 1992–2021 operating rates (during the Chemicals Supercycle) until 2032. At the end of last year, the consensus was 2030.

But the ICIS Supply & Demand Database, suggests a global ethylene operating rate of just 80% in 2036.

How would we get back to the very healthy average operating rate of 87% seen in 1992–2025, most of which occurred during the Chemicals Supercycle?

Assuming global production — which is about the same as demand — stays unchanged from our base case, global capacity would have to grow by an average of around 2.5m tonnes a year, versus our base‑case forecast of 6.2m tonnes a year. We assume average annual production growth of 2% in 2026–2036.

Advantaged projects in the Middle East and North America seem likely to go ahead even under this alternative scenario, and China might continue its push to self‑sufficiency.

This implies capacity closures elsewhere to get to the 2.5m tonnes a year of 2025–2035 capacity growth.

5. China’s Value‑Added Export Momentum Accelerates

China’s dominance in electric vehicles and solar panels is now clear, and this leadership will continue to spill over into green chemicals and services.

China’s higher‑value manufacturing exports in general will continue to boom as it grows increasingly powerful down the value chain in basic commodities such as homopolymer PP.

The EU and other countries and regions will, like the US, huff and puff about clamping down on Chinese imports.

Sure, there will be more antidumping and other trade duties introduced against China, but these are tactical, not strategic, and will do little to protect domestic industries being hollowed out by China’s long‑term state‑driven manufacturing model.

Industries elsewhere will continue to flounder because of a lack of coordinated and commonsense industrial policy — especially in the EU. The EU’s complex rules, competing power blocs and the focus on green objectives at the expense of local manufacturing will continue to give China an advantage.

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