German chemical output falls under “constant stress”

Frankfurt, Germany – Germany's chemical and pharmaceutical industry made “a weak start to 2026,” with production falling sharply amid geopolitical tensions, rising costs and mounting competitive pressures.

Seasonally adjusted production across the chemical and pharmaceutical sectors fell 2.8% in the first quarter from the previous quarter and was 6.0% below the year-earlier level, according to figures released by the German Chemical Industry Association (VCI) 29 May.

The decline was driven primarily by pharmaceuticals, where production dropped 10.1% quarter-on-quarter and 8.7% year-on-year after companies benefited from a 2025 production "pull-forward" linked to US tariffs.

Chemical production improved slightly, rising 2.0% from the fourth quarter of 2025, but remained 4.3% below the prior-year period, according to VCI figures.

"The chemical and pharmaceutical industry got off to a weak start in 2026," the VCI said, adding that "a sustainable recovery is not foreseeable."

Commenting on the results, VCI managing director Wolfgang Grosse Entrup said the German chemical industry was struggling, while the pharmaceutical sector was “preparing for even greater challenges."

"We are not seeing a sense of optimism, but rather geopolitical hoarding," Grosse Entrup added.

This, said the VCI chief, is “a panicky interim peak, from which parts of the chemical industry are also benefiting in the short term."

Grosse Entrup continued: "The stark truth is: the chemical industry remains under constant stress – burdened by rampant bureaucracy, high costs, and global turbulence."

According to the VCI, capacity utilisation edged up but remained at an unprofitable 75.1% during the first quarter, while job cuts continued across the sector.

Pointing to rising energy, raw material and transportation costs linked to the Middle East conflict, VCI said the closure of the Strait of Hormuz worsened supply-chain disruptions and pushed up prices for oil, gas and naphtha.

While some chemical producers are seeing stronger demand due to "precautionary ordering", the VCI said it did not expect "a sustained recovery this year." 

Additional orders received at the start of the year "suggest that these were partly precautionary orders and inventory build-up in light of the escalating tensions in the Gulf," the association said.

Producer prices for chemicals rose 0.2% quarter-on-quarter in the first quarter, ending the sector's recent downward trend. However, prices remained 1.0% below year-earlier levels.

In terms of pricing within the chemicals segment, prices for inorganic basic chemicals increased 1.5% quarter-on-quarter and were 2.4% higher than a year earlier.

By contrast, petrochemicals and derivatives saw prices fall 0.2% from the previous quarter and 5.5% year-on-year.

Polymer prices declined 0.6% quarter-on-quarter and were down 3.4% from the first quarter of 2025.

The overall chemical sector first-quarter sales rose 2.0% quarter-on-quarter but were down 5.8% year-on-year.

Inorganic basic chemicals posted one of the strongest performances, up sequentially but down 3% year-on-year.

Polymer sales rose 2.8% compared to the final quarter of 2025 but fell 9.4% year-on-year.

Petrochemicals and derivatives remained the weakest-performing segment, with sales down 11.6% compared with the first quarter of 2025.

Looking ahead, the VCI said forecasting remained difficult given geopolitical uncertainty but warned that 2026 is likely to be another challenging year.

"Production is likely to decline again for the year as a whole," the association said.

While higher prices could support sales, "margins will remain under pressure."

Against this backdrop, Grosse Entrup urged policymakers in Berlin and Brussels to act.

"We have little influence over geopolitical crises – but we do over our business environment. A policy of small steps is no longer sufficient," he warned.

Instead, Grosse Entrup called for "strong leadership, reliability, and a clear industrial policy."

The VCI leader also voiced his concern over "massive capacity expansion and state-subsidised production" in China, which he said are "increasingly putting European industry under pressure and hitting many sectors hard."

Stating that "blanket protectionism and new trade barriers" are not a good solution, Grosse Entrup said the existing trade defence instruments must be used effectively.

Europe, he said, needs "a confident and fair approach to China" using tools that "effectively limit distortions of competition without jeopardising international value chains."