Sabic's Dividend Cut and UK Plant Closure: A Microcosm of Global Petrochemicals' Structural Decline

The recent decision by Sabic to shutter its Olefins 6 cracker in Teesside, UK, and cut its dividend is not merely a corporate adjustment—it is a bellwether for the systemic cracks in the global petrochemical industry. This move, coupled with a wave of plant closures and rationalizations across Europe, underscores a broader malaise: a sector grappling with overcapacity, deteriorating margins, and a stark shift in regional competitiveness. For investors, the implications are clear: European petrochemical assets are increasingly exposed to long-term risks that demand a recalibration of strategies.

A Global Overcapacity Crisis

The petrochemical industry in 2025 is drowning in excess capacity. Ethylene and propylene utilization rates hover near 70%, far below the 80–90% range typical for a healthy sector. This imbalance stems from a decade of unchecked production expansion, particularly in China, where 50 million tonnes of new ethylene capacity came online between 2020 and 2028. Meanwhile, demand growth has lagged, stymied by a post-pandemic economic slowdown and weak performance in key sectors like automotive and electronics.

The fallout is evident in financial metrics. Global return on capital employed (ROCE) for petrochemical firms has plummeted from 8% in 2019 to 4% in 2024, while EBITDA margins have contracted from 17% to 12%. These numbers reflect a sector starved of pricing power, where companies are forced to compete on cost rather than innovation. The result? A vicious cycle of margin compression and underinvestment in critical areas like decarbonization and downstream integration.

Europe's Structural Weaknesses

Europe's position in this crisis is particularly precarious. The region's energy costs are 3.2 times higher than those in the U.S., a gap exacerbated by the post-2022 natural gas price surge. Steam crackers, which consume vast amounts of energy, are especially vulnerable. In 2023, ethylene operating rates in Europe averaged 70–75%, far below the industry norm. This has forced companies like Sabic, ExxonMobil, and Dow to mothball or close plants, with 14 million tonnes of capacity eliminated since 2023.

The human cost is stark. Sabic's Teesside closure, which has left hundreds unemployed, highlights the social and economic toll of these adjustments. Yet, even as European firms rationalize assets, they remain trapped in a cost structure that makes them uncompetitive. The Middle East and U.S., with their low-cost feedstocks and energy, are now supplying 20% of Europe's chemical demand—a reversal of historical trade flows.

Competitiveness Gaps and Strategic Realities

The cost differentials between regions are widening. The U.S. and Middle East benefit from shale gas and low-cost crude, enabling margins that European producers can only dream of. Ineos' new ethane-based cracker in Antwerp and Eni's biorefinery in Italy are rare exceptions—European firms betting on U.S. feedstock or higher-value products to offset their disadvantages. But these efforts are the exception, not the rule.

For investors, the lesson is clear: European petrochemicals are in a structural decline. Companies in the region are increasingly classified as “middle ground” or “limited options” in Deloitte's chemical multiverse analysis, with weak returns and limited capacity for innovation. Meanwhile, U.S. and Middle Eastern firms—labeled “strategic leaders”—are capturing market share and reinvesting in high-growth areas like semiconductors and clean energy.

Investment Implications

The data tells a sobering story. The petrochemical sector's annualized total shareholder return (TSR) has lagged behind the S&P 500 by 16 percentage points over the past five years. European companies, with their high costs and shrinking margins, are even further behind. However, a closer look at Sabic, a key player in this sector, reveals that its stock has historically shown positive short-term gains following dividend announcements. A backtest from 2022 to now indicates a 62.5% win rate over 3 days, 60% over 10 days, and 65% over 30 days, suggesting that while the sector struggles, these events can offer temporary opportunities for investors.

Conclusion

Sabic's dividend cut and plant closure are not isolated events—they are symptoms of a sector in transition. For European petrochemicals, the path forward is fraught with challenges. Investors must recognize that the old playbook—relying on scale and integration—no longer works in a world defined by overcapacity and shifting cost dynamics. The winners will be those who adapt to the new reality: companies in cost-advantaged regions, those pivoting to specialty chemicals, and those leveraging low-carbon technologies. For Europe, the question is not whether the industry can survive, but how quickly it can reinvent itself—or whether it will cede its place to rivals in the Middle East and beyond.
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