The chemical industry: what it makes and how it is organised: What the chemical industry is and how big it is

1.1 The chemical industry is an upstream supplier to almost every other industry

Statisticians define the industry by what its plants do. In the US classification used by Wittcoff, Reuben and Plotkin, code 325 is chemical manufacturing. Inside it, the basic chemicals branch isolates or synthesises molecules, while the allied branches modify, formulate and package them into paints, soaps, medicines and fertilisers. Europe's industry body, Cefic, uses a similar split, but its headline figures for 'chemicals' leave out pharmaceuticals, which are counted as a separate industry. Keep that in mind whenever two sources disagree about size.

The defining feature is where the industry sits in the economy. It buys petroleum, natural gas, coal and minerals and sells mostly to other businesses rather than to the public. In 2000 the US industry bought about $40 billion of raw materials and sold products worth about $460 billion. Roughly a fifth of those sales went to other chemical companies for further processing, and the health care sector had just overtaken the chemical industry itself as the largest buyer by value.

This position explains two ideas that run through the whole course. First, chemical demand is derived demand: it rises and falls with construction, cars, packaging, farming and health spending. Second, value is added in steps. In 1999 the US petroleum and coal products industry had about $168 billion of shipments but only $42 billion of value added. Chemicals had about $420 billion of shipments and $229 billion of value added: 5.4 times as much value added on less than twice the sales. Wittcoff notes that this gap is what tempted oil companies to build chemical arms.

• Wittcoff (2004), Ch 1 The Chemical Industry · pdf pp. 41-44, 59-60
• IEA (2018), The Future of Petrochemicals · pdf pp. 11, 17
• Cefic (2025), Facts and Figures data file · sheet 'Sales' (Chemicals, NACE 20)

1.2 World chemical sales are about 5 trillion euros, and nearly half are made in China

Cefic's data file gives world sales of chemicals, excluding pharmaceuticals, of about EUR 5,031 billion in 2024. China alone accounted for EUR 2,298 billion, or 46% (2,298 / 5,031). The European Union of 27 countries and the United States each had about 12.5%, and Japan, South Korea and India each had about 3%.

Twenty years earlier the picture was very different. In 2004 world sales were EUR 1,406 billion and China's share was 10%, while the EU had 27% and the United States 22%. Over the two decades world sales in current euros rose 3.6 times. China's rose 16 times, India's almost 5 times and the EU's only 1.65 times. Wittcoff's figures for 2000, which include pharmaceuticals and are in dollars, tell the same story from the other end: world sales of about $1,700 billion, with the United States at 27%, Western Europe at 29% and Japan at about 15%.

Value figures mix quantity with price, and chemical prices swing with oil and gas. World sales jumped to EUR 5,524 billion in 2022, when energy prices spiked, then fell back to EUR 5,005 billion in 2023. Cefic therefore also publishes sales at constant 2015 prices, which strips out price changes. On that basis, between 2015 and 2024 world volume grew 33%, China's grew 68% and India's 75%, while US volume fell 2% and EU volume fell 5%. Cefic's production index, set at 100 in 2021, stood at 83.5 for the EU and 81.4 for Germany in 2024, against 126.6 for China. The centre of gravity has moved east, and it moved mainly through growth in volume rather than price.

• Cefic (2025), Facts and Figures data file · sheets 'Sales', 'Sales (Volume)', 'Production', 'Employment'
• Wittcoff (2004), Ch 1 The Chemical Industry · pdf p. 46

1.3 About a third of output crosses borders, and investment now follows Asian demand

Chemicals are heavily traded. World chemical exports in 2024 were EUR 1,575 billion, equal to 31% of world sales. The EU exported EUR 226 billion outside its borders and imported EUR 180 billion, a surplus of EUR 46 billion. The United States had a surplus of EUR 25 billion and Saudi Arabia, with only EUR 60 billion of sales, a surplus of EUR 23 billion, because most of its output is made for export. China's balance shows how fast its industry grew: a deficit of EUR 44 billion in 2014 became a surplus of EUR 36 billion in 2024. India moved the other way, with imports of EUR 68 billion against exports of EUR 38 billion in 2024.

Capital spending shows where the next decade's capacity is being built. World chemical capital spending was EUR 273 billion in 2024, and China accounted for EUR 127 billion, or 47%. The EU spent EUR 28 billion and the United States EUR 25 billion. Relative to sales, the world spent 5.4%, the EU 4.5% and Saudi Arabia 16.7%, a ratio consistent with an industry still being built out.

Research spending is concentrated differently. Among the countries that report it, R&D totalled EUR 57 billion in 2024: China EUR 17.8 billion, the United States EUR 13.1 billion, the EU EUR 10.4 billion and Japan EUR 6.8 billion. As a share of sales that is 4.3% for Japan, 2.1% for the United States, 1.6% for the EU and India, and 0.8% for China. Part 2 shows why product mix drives such ratios.

• Cefic (2025), Facts and Figures data file · sheets 'Total Exports', 'Total Imports', 'Trade balance', 'Capital Spending', 'R&D Spending'
• IEA (2018), The Future of Petrochemicals · pdf p. 12

1.4 The industry is the largest industrial energy user, and half its energy input is raw material

According to the IEA, the chemical sector is the largest industrial energy consumer, ahead of steel and cement. In 2017 it used about 10% of the world's final energy and almost 30% of industry's, including 14% of world oil demand (about 13 million barrels a day) and 8% of gas demand (about 300 billion cubic metres), twice as much gas as all transport.

The key to understanding these numbers is the word feedstock. Just over half of the energy entering the sector is not burned at all. It is the raw material whose carbon and hydrogen atoms are rearranged into plastics, fibres and fertilisers. In 2017 about 12 million barrels a day of oil products, 105 billion cubic metres of gas and 80 million tonnes of coal entered as feedstock. Together with oxygen, nitrogen, chlorine and water added along the way, they became nearly a billion tonnes of chemical products. Because much of the carbon stays locked in products, the sector emits less CO₂ than steel or cement despite using as much energy as both combined: about 1.5 billion tonnes, 18% of industrial emissions.

Europe's figures show the industry's sensitivity to energy prices. EU chemical energy use fell from 752 terawatt-hours (TWh) in 1990 to 515 TWh in 2023, a drop of 32%. In 2023 gas (184 TWh) and electricity (150 TWh) made up 65% of the total, which is why the sheet is headed 'two thirds'. When gas prices spiked in 2022, the industry's gas use fell 22% in a single year, from 231 to 180 TWh, and the EU production index fell from 96 in 2022 to 86 in 2023.

• IEA (2018), The Future of Petrochemicals · pdf pp. 12, 14, 27-30
• Cefic (2025), Facts and Figures data file · sheet 'Energy consumption', 1990-2023

See it in the table

Check your understanding

In 2024, roughly what share of world chemical sales (excluding pharmaceuticals) was made in China?

Why can the chemical sector use as much energy as steel and cement combined yet emit less CO2 than either?

China's chemical trade balance went from a deficit of EUR 44 billion in 2014 to a surplus of EUR 36 billion in 2024. What does this mainly tell you?