Charting the next phase of petrochemical M&A

 The petrochemical industry is experiencing extreme volatility. Demand growth has slowed creating persistent oversupply. Global utilisation rates for commodities like ethylene and propylene have plummeted and are expected to remain well below historical averages. Many companies are running old, uncompetitive facilities. And competition has intensified as players in China, the Middle East, and North America build production capacity.

Petrochemical producers worldwide face their lowest margins in over a decade, with EBITDA dropping from 17% to 12%. Shareholder returns reflect this decline: between 2019 and 2024, petrochemicals’ annualised TSR was –1%, compared to 15.3% for the S&P 500.

In response, some petrochemical companies have begun rationalising their manufacturing capacity. But to restore global market balance and achieve sustainable operating performance, more is needed.

Consolidation as a solution

Mergers and acquisitions (M&As) offer petrochemical companies some crucial advantages. They can:

• Expand access to traditional feedstocks, lowering production costs
• Provide entry into high-growth markets like Asia-Pacific
• Secure access to proprietary technologies that can lower R&D costs or improve manufacturing capabilities
• Build out a company’s core offerings and create a platform for future ventures
• Leverage vertical integration to capture more value upstream and/or downstream

Over 300 deals were announced in 2024. More are anticipated in 2025, including the announced merger of Borealis and Borouge, and the new entity’s acquisition of Nova Chemicals for US$13.4 billion.

But not all markets are consolidating; activity remains low in commodity petrochemicals, where margin pressures are greatest. And M&A activity varies across regions. China’s key petrochemical value chains appear to be the most fragmented, while many markets in Europe, North America, and India are highly consolidated.

Predicting the future

Over the next decade, the petrochemical industry will undergo significant shifts in where and how value is created. BCG analysis finds three possible scenarios for how these changes may play out.

1. Feedstock- and market-advantaged players will be the winners. Leading US players capitalise on feedstock advantages to dominate exports across the Americas, while Middle Eastern producers primarily supply Europe and Asia. Local champions emerge in China and India, taking advantage of domestic demand and reducing dependence on imports.
2. NOCs dominate through M&As and scale. Select oil and gas NOCs vertically reintegrate their petrochemical businesses. M&As and investments in technology enhance competitiveness and secure access to global markets. Several traditional majors exit the market.
3. Regional champions emerge amid protectionism. Trade barriers and environmental regulations depress global trade and increase domestic production. Each region develops its own value chain. Consolidation expands, resulting in two to three dominant players per region.

As these scenarios make clear, no petrochemical company can afford to be complacent. Players should map out their strategic chessboard by product and region to determine potential moves under the three different scenarios.

Acquirers: capitalise on dislocation to secure high-value assets

Given fluctuating raw material prices, demand uncertainty, and increasingly complex regulation, acquisition success will hinge on a comprehensive understanding of potential synergies. From a revenue perspective, value can be created through new cross-selling opportunities, pricing uplifts, and enhanced commercial capabilities. Cost synergies can be realised by rationalising manufacturing footprints, streamlining logistics, and consolidating procurement operations. Companies should also consider reallocating volumes to more efficient plants and specialising production lines to lower unit costs. Two skill sets will be essential for companies positioning themselves as acquirers: due diligence and post-merger integration.

Acquirees: position for premium valuation

To maximiie their attractiveness to potential acquirers, companies aiming to divest or carve out assets need to clearly articulate their business strategy, financial profile, and the investor value proposition. Sellers should explain their company's position within the broader context of global overcapacity and regional demand trends, then outline their portfolio vision across key product chains, differentiating between commodity and specialty offerings. Emphasising strengths like advantaged feedstock access, proximity to demand, offtake agreements, differentiated technology, and the potential for downstream integration can enhance the asset’s strategic appeal.

Consolidation is shaping the future of the petrochemical industry. Few companies can afford to stand on the sidelines. Those that act now to prepare for this new landscape will emerge stronger and more resilient in the years to come.