BASF, DuPont, and 3M face massive claims, marking the first major shift in the chemical industry.

As the transformation of new and old growth drivers takes place, the traditional chemicals market, which has been rapidly expanding in capacity and strangled by environmental pressures, will gradually be "replaced."

Global Ban Sparks Shift in the Chemical Industry

Recently, BYK-Chemie announced that it would cease supplying PFAS-containing additives by 2025. Companies such as Avient, LG Chem, and Clariant have also begun introducing PFAS-free additives. This seems to signal to the industry that, with governments worldwide advancing PFAS bans—especially the EU’s ban, which could take effect in 2026—major chemical companies are gradually preparing to "phase out PFAS."

PFAS, or per- and polyfluoroalkyl substances, are a group of synthetic chemicals known for their excellent chemical properties, such as heat resistance, water and stain repellency, and durability. They have been widely used in the production of fire-resistant materials, firefighting foam, petrochemical products, non-stick cookware, food contact materials, detergents, cleaning products, and textiles.

However, the chemical structure of PFAS is extremely stable, featuring the strongest chemical bond in the world—the C-F bond—which makes them incredibly difficult to remove. PFAS are almost entirely non-biodegradable, can accumulate in the environment, and persist in human and animal bodies, particularly in aquatic ecosystems. Due to their extreme persistence, PFAS have earned the nickname "forever chemicals" and have the potential to contaminate food and water, leading to health risks such as liver damage, thyroid disease, obesity, fertility issues, and cancer.

Previously, several chemical giants faced massive claims due to the severe environmental pollution caused by PFAS, particularly concerning drinking water contamination.

On May 21 of this year, BASF's North American division reached a settlement with public water systems in the U.S., agreeing to pay $316.5 million to resolve nationwide lawsuits and claims related to PFAS.

In April, 3M announced it would provide $10.3 billion over the next 13 years to public water systems to address water pollution claims related to PFAS.

DuPont, Chemours, and Corteva have also agreed to jointly establish a fund with $1.185 billion to address PFAS-related claims from specific public water systems in the U.S.

Currently, China, the U.S., the EU, and other regions are rapidly implementing a series of PFAS ban policies (not detailed in this text). Under the global PFAS ban, the pharmaceutical industry is expected to be significantly impacted—according to the European Chemicals Agency (ECHA), the medical industry's annual PFAS usage ranges from 25,000 to 62,000 tons. PFAS are essential for surgical tools, sutures, catheters, and imaging equipment like MRI, CT, or ultrasound machines. Even if the medical device industry is granted exemptions from PFAS bans, manufacturers of related medical devices and consumables are demanding that suppliers find environmentally friendly alternatives to these chemicals to avoid potential future litigation risks.

As global markets increasingly prioritize environmental protection and the industrial sector undergoes overall upgrades, PFAS may eventually disappear from production. Currently, leading chemical companies are gradually introducing PFAS-free processing additives.

Rapid Capacity Growth Impacts Industry Profits as Chemical Sector Seeks Differentiation

This year, the chemical industry has accelerated its efforts to differentiate and break through market challenges. This is particularly true in sectors where competition is intensifying, and profit margins are shrinking, such as the downstream markets of polycarbonate (PC) and paraxylene (PX).

Industry data shows that as of mid-2024, China’s PC production capacity has exceeded 3.4 million tons per year. The rapid increase in capacity has led to significant homogenization in newly constructed PC plants, resulting in intense competitive pressure. This situation is pushing manufacturers to focus on high-end PC products. Currently, the average profit margin for Chinese PC products is around 13%, but certain high-end PC product grades are sold at 2-3 times the price of standard grades, yielding significantly higher profitability.

Furthermore, the upgrading of downstream consumer markets, particularly in sectors like electronics, electric vehicles, and smart home devices, has driven the rapid growth in demand for high-end PC products. This trend has strengthened over the past year, with many international chemical giants, including SABIC, Wanhua Chemical, Mitsubishi Chemical, Covestro, and Trinseo, opting to develop differentiated PC products. Differentiated PC, including modified, alloy, and high-end PC products, is seen as key to overcoming the challenges of homogenization.

In the PX sector, a recent report by CNCIC Consulting indicates that profits are concentrated upstream, while downstream sectors are facing losses due to excess capacity resulting from rapid expansion.

Since 2023, despite widespread losses in the PTA and PET markets, the PX-naphtha spread has remained around $400 per ton, making PX the most profitable segment in the value chain. However, raw material supply remains a critical factor limiting downstream companies in the PX industry from moving upstream, resulting in continued high dependence on PX imports despite the overcapacity in PET and PTA. By the end of 2023, China had 13 PX production companies (counting group companies as one), with only three—Zhejiang Petrochemical, Hengli, and Shenghong—successfully integrating their PX value chains from fiber production to achieve differentiated development. The rest are upstream refining companies. By 2028, China’s PX capacity is expected to reach 52.8 million tons per year, with an average operating rate of about 90%, leaving a supply gap of around 5 million tons. Given the mid- to long-term development potential of the value chain, petrochemical companies still see good market opportunities in developing PX businesses.

It is worth noting that, in response to the rising competition from the "Chinese chemical industry corps," multinational chemical companies are experimenting with "group development" and vertically integrated upgrades. According to Chemical New Materials, eight leading foreign chemical companies have announced the creation of the world’s first polyester fiber value chain based on CO2-derived materials, as well as renewable and bio-based materials. The companies involved include Chiyoda, Goldwin, Mitsubishi Corporation, and Toray (all from Japan), SK geocentric (South Korea), Indorama Ventures (Thailand), India Glycols (India), and Neste (Finland).

This value chain has clear divisions of labor: Neste is responsible for providing renewable naphtha from biomass waste and residual oils; Chiyoda, Mitsubishi Corporation, and SK geocentric supply renewable PX; Indorama Ventures provides renewable purified terephthalic acid (PTA); India Glycols offers bio-ethylene glycol from sugarcane; Toray supplies renewable PET; and Japanese outdoor brand Goldwin manages the entire supply chain, using the polyester fiber produced by this project to manufacture sportswear, which is scheduled to hit the market in July. Although this collaborative approach is still in its experimental stage, it offers valuable insights for the future development of China’s chemical industry. Currently, similar research is being conducted by the Institute of Silicon Chemistry of the Chinese Academy of Sciences and the team of Academician Tan Tianwei at Beijing University of Chemical Technology, but it has yet to reach commercialization.

China’s Chemical Industry Must Overcome Technological Barriers to Compete Globally

According to observations and analysis by Jaken Industry Research, China’s chemical industry is climbing the value chain with a comprehensive range of products, from engineering plastics to specialty engineering plastics, and from fine chemicals to high-purity electronic chemicals. As the industry develops, more and more segments overlap with those in developed countries, leading to increasing competition. While China’s chemical industry benefits from a large domestic market and a complete industrial system, it must continue to overcome product and technology barriers to create a siphon effect in the industry. This would significantly reduce competitive pressures, as seen in markets like Australia, the UK, and Italy, where local competitors have become less formidable.

It’s important to note that in the first half of 2014, among China’s top five overseas markets for chemicals, only the U.S. market saw growth, while the other four experienced declines, with the South Korean market seeing the largest drop of 30.3%, and the Japanese market falling by 16.2%. A review of export data for the top 20 overseas markets shows that China’s chemical exports to developed countries have encountered obstacles, while exports to developing countries continue to grow steadily. For example, exports to Indonesia and Brazil increased by over 8%, and export growth to Vietnam, Thailand, and Russia remained positive.

Given the complementary relationship between developing countries and China’s chemical industry, as well as the high growth potential and relatively stable environments in these markets, Chinese companies should actively expand into developing countries that lack significant heavy chemical industries and are less able to withstand cyclical industrial fluctuations.