German Chemical Industry Sentiment Turns Positive for First Time in Four Years, Ifo Reports

Business sentiment in Germany's chemical sector turned positive in August for the first time in four years, driven by a sharp improvement in assessments of current conditions, according to a key survey from the Ifo institute. The economic research group cautioned, however, that the rebound is heavily dependent on temporary global supply disruptions and does not yet signal a broad-based recovery for the struggling industry.

A Fragile Rebound

The Ifo business climate index for the chemical industry surged to -2.4 points in August from a seasonally adjusted -26.3 in July, the Munich-based institute reported. A key component of the index, the gauge for current business conditions, climbed to +11.6 points from -14.6 the prior month, marking its first positive reading since July 2022.

According to Ifo, the upswing is largely a result of supply chain issues affecting Asian and Middle Eastern producers, which has temporarily boosted demand for German chemical products. Ifo industry expert Anna Wolf told Reuters that this "substitution effect disappears" as soon as those international supply chains normalize, suggesting the advantage is temporary.

Underlying Weakness Persists

Despite the improved mood, underlying fundamentals for the sector remain weak. German chemical production is still approximately 20% below 2021 levels, Ifo noted. The survey also revealed that capacity utilization has shown little improvement, standing at 73.2% so far in the third quarter.

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This figure is well below both the long-term average of 80.4% and the levels typically needed for plants to operate economically. The low utilization rate suggests that stronger demand is largely being met from inventories rather than new production. Consequently, chemical firms continue to plan for job cuts as excess labor capacity persists.

Structural Hurdles and Corporate Outlook

The temporary boost has been reflected in some corporate results, with industry leaders BASF, Evonik, and Brenntag recently raising their full-year profit forecasts, citing improved pricing and demand from supply disruptions outside Europe.

However, Wolf cautioned that it was "too early to speak of a recovery," as significant structural challenges remain unresolved. These include high gas prices, concerns over energy supply security, and rising CO2 costs, which continue to weigh on the long-term competitiveness of Germany's energy-intensive chemical sector.