Deteriorating Business Environment in the Chemical Sector Persists
The chemical industry's business outlook dimmed in May, reflected in a decline of the Ifo index to -16.5 points, down from -14.2 points in the preceding month. This deterioration was driven primarily by a worsened assessment of the current business situation, dropping to -26.0 points compared to -16.2 points in April. Nevertheless, chemical companies registered slightly improved expectations, reaching -6.4 points, up from -12.2 points in April.
According to Ifo industry expert, Anna Wolf, factors such as U.S. trade policy and structural issues are causing considerable strain on the chemical sector. The industry continues to grapple with low order backlogs and waning export expectations, with a further slide into negative territory in May. In the face of stiff global competition, German chemical companies have reported ongoing losses, both within Europe and beyond its borders. The industry is grappling with weak demand and escalating trade barriers, forcing domestic companies to slash prices and implement cost-cutting measures.
In anticipation of leaner production volumes and reduced staffing in the coming months, the chemical industry braces itself for a challenging road to steady growth. Anna Wolf noted that "only more stable energy prices" provide a modicum of relief for the industry.
In related news, the chemical sector is grappling with a mixture of challenges. Recovery of demand remains sluggish, with a mixed outlook for 2025, characterized by a gradual recovery in demand[1][5]. Weak demand and faltering confidence persist, particularly in the EU, where significantly higher gas prices contrast with U.S. levels[2].
Market uncertainties stemming from tariffs and lower consumer confidence levels are impacting the basic materials market, encompassing chemicals[3]. Moreover, the industry is navigating through policy changes, including potential plastics regulations that could have an impact on large chemical companies[4]. These regulations could be embodied in bans on single-use plastics or caps on production levels. Additionally, ethylene capacity and exports are under pressure from tariffs and limited market outlets for certain chemical products[4].
- The ongoing challenges in the chemical industry are not limited to weak demand and policy changes, as market uncertainties from tariffs and lower consumer confidence levels are also impacting the finance sector, specifically the basic materials market that encompasses chemicals.
- In the finance industry, chemical businesses are grappling with the potential impact of policy changes such as plastics regulations and trade tariffs on their businesses and profit margins. For instance, bans on single-use plastics or caps on production levels could significantly influence the financial health of large chemical companies.
