Covestro is focusing its next major chemical expansion on China and the Persian Gulf. The Leverkusen-based plastics company is planning a new MDI plant in Shanghai and is also evaluating a facility in Abu Dhabi. This shift affects Germany not through immediate closures, but through investments that will relocate future growth, export opportunities, and industrial depth abroad.
Shift in focus begins with new investments
Covestro is planning an MDI plant in Shanghai with an annual capacity of 660,000 tonnes. Production is scheduled to begin early next decade. In addition, the company aims to more closely integrate key precursors and infrastructure with the site.
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MDI is one of Covestro’s core products. This raw material is used in insulation panels, refrigeration units, automotive parts, and modern household appliances. Consequently, the company is expanding into markets where the construction, refrigeration, and industrial sectors continue to grow.
Europe Losing Ground in Basic Chemicals
Covestro CEO Markus Steilemann explains the decision with unusual candor. “Europe faces fundamental cost disadvantages compared to locations in Asia and the Middle East,” he told the Handelsblatt. Furthermore, demand is weakening as many customers scale back their operations in Europe.
This move represents more than just standard site optimization; it signifies a shift in where future value will be created. While Germany remains important for specialty chemicals, research, and customer-specific applications, factors such as energy costs, raw materials, regulatory approvals, and proximity to sales markets carry more weight than industrial tradition when it comes to high-volume chemical production.
Abu Dhabi Offers a Superior Industrial Equation
Covestro is evaluating a second project in Ruwais, Abu Dhabi. There, the company is collaborating with TA’ZIZ and Fertiglobe. The location is also home to XRG, the new Covestro owner linked to the state-owned oil company ADNOC.
Steilemann describes the locational advantage in clear terms: “We could build one of the world’s most competitive plants in this region,” he said. However, the potential facility is not intended primarily to supply Europe, but rather India, Turkey, and the border region between Europe and Asia.
Relocation Also Alters Export Markets
To date, Covestro’s European plants have served parts of these markets. However, Asian competitors with lower-cost structures are pushing into the same sales regions. As a result, new capacity in the Gulf region could eventually displace export volumes from European plants.
This shift is occurring more quietly than traditional plant closures. Existing facilities remain operational while new multi-billion-euro projects are developed elsewhere. Yet, it is precisely this process that causes Germany to lose out on future capacity utilization, investment momentum, and industrial integration.
China scores with speed and renewable energy commitments
Despite overcapacity in certain segments of the petrochemical industry, Covestro sees better prospects for MDI in China. “China is the world’s largest chemical market and the fastest-growing market for MDI,” said Steilemann. However, the company does not intend to produce there for the European market; instead, it aims to serve the Asian market.
Notably, Covestro does not attribute its move to China solely to lower energy costs. According to Steilemann, Chinese electricity and gas prices are not drastically lower than European costs. Rather, the decisive factors are rapid administrative procedures, industrial expertise in Shanghai, and guaranteed supplies of green electricity.
Strait of Hormuz remains a sensitive issue despite location advantages
Covestro also cites security of supply as a reason for choosing Abu Dhabi. However, this argument remains vulnerable to criticism, as the Strait of Hormuz is considered a potential bottleneck during geopolitical crises. Nevertheless, Steilemann expects that major powers have no interest in lasting instability in the Gulf region.
In the short term, the CEO anticipates a difficult second half of the year. Following the conflict involving Iran, customers had brought forward their orders to ensure the stability of their own supply chains. However, this effect provides only temporary support for European manufacturers.
Germany is losing out on expansion, not just individual orders
The German chemical industry is already grappling with low capacity utilization, high costs, and sluggish demand. Covestro reported a drop in revenue to €12.9 billion and negative free operating cash flow for 2025. Furthermore, international competition is hitting hardest those products where energy and raw materials are the primary price drivers.
The Covestro case thus illustrates the true dynamic behind this industrial exodus. Companies do not necessarily immediately relocate existing plants out of Germany; instead, they build new capacity in locations where energy, raw materials, regulatory processes, and sales markets align more favorably.
Author: Blackout News
Sources: Covestro (30.06.26) – Handelsblatt (30.06.36) – Emirates News Agency WAM (30.06.26) – Financial Times (30.06.36)