Key facts
- German chemical industry business sentiment index rose to -2.4 in August from -26.3 in July.
- Current conditions gauge for the sector reached its first positive reading in four years, at 11.6 points.
- Stronger exports are linked to global supply chain disruptions outside Europe.
- Major chemical companies like BASF, Evonik, and Brenntag have raised profit forecasts.
- Capacity utilization remains below long-term averages, indicating demand is met by inventories.
- Structural issues including high energy costs and CO2 prices persist.
Germany's chemical industry experienced a notable improvement in business sentiment in August, with companies reporting positive current conditions for the first time in four years, according to data from the Ifo institute. The business climate index rose significantly to minus 2.4 points from minus 26.3 in July. The gauge for current conditions also turned positive, reaching 11.6 points, its highest level since July 2022.
This rebound is largely attributed to global supply chain disruptions affecting Asian and Middle Eastern suppliers, which have redirected demand towards German chemical products. However, Ifo industry expert Anna Wolf cautioned that this advantage is likely temporary and will disappear as supply chains normalize. Underlying industry conditions remain weak, with German chemical production still approximately 20% below 2021 levels.
Corporate results have reflected the improved sentiment, with major players like BASF, Evonik, and Brenntag recently increasing their full-year profit forecasts. Despite better order books and sentiment, capacity utilization has shown little improvement, remaining at 73.2% in the third quarter, well below the long-term average of around 80.4%. This suggests that stronger demand is being met from existing inventories rather than increased production.
Chemical firms are still planning job cuts due to low utilization rates, indicating a surplus of labor capacity. Furthermore, structural challenges such as high gas prices, supply security concerns, and rising CO2 costs remain unresolved, hindering the sector's overall competitiveness.