Germany's chemical industry is confronting persistent structural difficulties even after a brief period of support tied to geopolitical disruptions in the Middle East, the German chemical industry association VCI said on Thursday.
Data cited by the association show chemical production in the first half of 2026 fell 3% compared with the same period a year earlier, while revenue for the chemical-pharmaceutical sector declined 1% over that span. Citing rising costs, falling sales and intense global competition, the VCI cut its full-year production forecast to a decline of 1.5%.
The association said the sector received temporary assistance as companies built inventories to guard against possible supply disruptions linked to the US-Israeli war on Iran. At the same time, Asian competition eased because Iran's blockade of the Strait of Hormuz reduced flows from that region. Chemical firms also shifted higher gas costs onto customers as a way to absorb shortages and increased input prices.
VCI President Markus Steilemann cautioned that the recent easing should not be mistaken for a permanent turnaround. "We are experiencing only a respite, not a change in trends," he said. He added that the industry continues to face fundamental problems and warned that pressures related to high costs are likely to re-emerge once stockpiling subsides and supply chains adapt to the new situation.
The association highlighted broader pressures on Europe's chemical sector, noting the need for restructuring in the face of weakening demand and elevated production and labor costs that render many operations uncompetitive.
The statement referenced major corporate moves in the sector over the past year. Abu Dhabi National Oil Co. assumed control of Covestro AG in a €12 billion ($13.8 billion) transaction last year. Steilemann leads the polymers maker, which supplies major phone and car manufacturers. In another large deal, BASF SE agreed last year to sell a majority stake in its coatings business for €7.7 billion.
VCI underscored that the crisis touches one of Germany's largest export sectors as the country's auto industry - the chemicals industry's biggest customer - cuts jobs and trims production capacity. The trade group represents more than 1,900 companies across the chemical and pharmaceutical fields.
Outlook and immediate drivers:
- The VCI now expects full-year chemical production to fall by 1.5% as rising costs and weak sales weigh on output.
- Short-term support from inventory accumulation and reduced Asian competition has eased near-term pressure but is unlikely to change the sector's structural trajectory.
- Market adjustments such as passing on higher gas prices to customers have provided temporary relief from cost increases.