2026 Chemical Industry Outlook | Deloitte Insights

Preserving cash

In a downcycle, cash preservation can help companies maintain liquidity, ensure operational continuity, and instill confidence in investors. Free cash flow (FCF) rose slightly in 2024 but declined in the first half of 2025. We expect this figure to improve in 2026 as companies leverage technology and data to drive cash management measures.

For instance, operational expenditures remained flat in the first half of 2025 compared to 2024, but SG&A fell 2.3% amid cost-cutting measures, such as layoffs and delayed maintenance.¹¹ Similarly, capital expenditures fell 8.4% year on year in 2024 and early earnings results indicate another drop in 2025.¹² Continued efforts to improve operational efficiency, capex, and net working capital could lead to higher FCF in 2026.

Transforming portfolios

Companies are reassessing portfolios across assets, products, and geographies, rationalizing underperforming assets, and prioritizing high-cash-flow businesses.

Rationalizing commodity chemical assets: Global overcapacity in basic chemicals is growing. New ethylene and polyethylene plants are expected to start in 2026 in the United States and Qatar, where low-cost feedstocks are usually available. Similarly, China continues building polypropylene capacity, driven by self-sufficiency policies.¹³ Conversely, Europe and parts of Asia face cost disadvantages, resulting in lower plant utilizations and several announcements of plant closures and divestments.¹⁴ Some newer plants are being designed to rely on US ethane rather than naphtha to stay competitive.¹⁵ However, with weak demand recovery and new capacity coming online, further shutdowns are likely.

Focus on specialty chemicals: Many specialty chemicals, however, are demonstrating higher margins for their tailored products. Specialty chemicals tend to be less commoditized and avoid the hyper-competitiveness of the commodity chemicals markets. As a result, several companies have announced intentions to shift their portfolios from basic petrochemicals to specialty chemicals or expand into adjacent specialty chemicals to capture higher margins.¹⁶

Preparing for mergers and acquisitions: With thin margins and oversupply, the current market lacks both buyers and attractive assets. Only 243 deals were made in the first half of 2025, the lowest for any half since pre-COVID.¹⁷ While significant growth through M&A is unlikely until stability returns, portfolio reevaluations could drive a wave of consolidation after 2026.