German chemical industry sentiment plunges on weak orders, rising competition, Ifo says

(Reuters) -Confidence in Germany's chemical industry fell sharply in October on higher competition and weak order momentum, according to an Ifo survey published on Monday.

The Ifo economic expectations indicator for the sector fell to a seasonally adjusted -13.3 points from -3.7 points, while the evaluation of the business climate deteriorated further, slipping to -19.4 points from -12.0.

Germany's chemicals sector, the country's third-largest industry employing around half a million people, is facing mounting pressure from high production costs, increasing bureaucratic burdens and a stagnating economy, with U.S. tariffs further compounding the challenges.

ORDER BACKLOG INDEX FALLS TO LOWEST IN OVER THREE DECADES

Momentum remains very weak, with an index gauging order backlogs dropping to its lowest level in more than three decades to -68.9 points, the institute said.

Capacity utilization declined to 71%, which is well below the long-term average over the past 10 years of 81%, Ifo said.

"To see any real normalization in industry margins, we need to be closer to 85% utilization," Geoff Haire, Head of EMEA Chemicals Equity Research at UBS, told Reuters.

"The combination of a lack of competitiveness, falling sales prices coupled with high costs, and weak orders is forcing companies to cut back on investments and further reduce staff," Ifo industry analyst Anna Wolf said.

Many chemicals players, including BASF and Covestro, have lowered their annual forecasts at least once this year.

Germany has introduced a series of major fiscal measures to stimulate its economy, including a 500-billion-euro infrastructure fund and a 46-billion-euro tax relief package to support businesses through 2029.

"In the current economic situation, the German government's relief measures are not enough to reverse the trend," Wolf said.

(Reporting by Amir Orusov and Anastasiia Kozlova; Editing by Conor Humphries)