German Chemical Industry Struggles as Conflict Hits Production and Recovery Prospects
By Anastasiia Kozlova and Ozan Ergenay
Impact of Middle East Conflict on Germany's Chemical Sector
Production, Sales, and Prices Decline in Q1
May 29 (Reuters) - Germany's chemicals lobby VCI said on Friday that production, sales and prices fell in the first quarter, and warned of little optimism ahead as an Iran war-linked rise in costs of energy, raw materials and transport weighs on the sector.
The chemical industry including pharmaceuticals saw a 6% drop in quarterly production numbers. Producer prices fell by 1% and sales were down 5.4% from a year ago, VCI said.
Wider Economic Significance
Role as a Bellwether for Europe
The third-largest industry of Europe's powerhouse Germany can be seen as a bellwether for the broader region's economy, as it produces material components used across sectors ranging from automotive and construction to agriculture and textiles.
Uncertainty and Outlook
Challenges in Forecasting
The chemical lobby again declined to issue a full‑year outlook, saying uncertainty surrounding the Middle East conflict made it impossible to make reliable forecasts, while adding that a sustained recovery this year was unlikely.
Short-lived Competitive Edge
VCI also echoed the Ifo Institute's gloomy comments from Thursday, saying any demand boost and competitive edge from the Iran war would prove fleeting.
Supply Chain Disruptions and Temporary Gains
European Chemical Companies Outperform Asian Rivals
The conflict has unexpectedly boosted some European chemical companies, helping them outperform Asian rivals as supply chain disruptions hit producers more reliant on Middle Eastern feedstocks, while Europe benefits from proximity to end markets and greater use of local inputs.
Long-term Risks and Delayed Recovery
Shipping and Production Challenges
"Whenever the Strait of Hormuz reopens, any return to normal, particularly in energy supply, is likely to be extremely delayed, as not only shipping has been disrupted but some production capacities have also been effectively taken off the market," VCI Managing Director Wolfgang Grosse Entrup said during a press conference.
Potential Market Turbulence
"Once Asian producers regain access and previous volumes begin to flow back, especially at levels seen last year and in early first quarter, we will certainly face some turbulent times," he added.
(Reporting by Anastasiia Kozlova, Ozan Ergenay in Gdansk and Patricia Weiss in Frankfurt, editing by Milla Nissi-Prussak)
