German chemical industry mood turns positive for first time in four years, Ifo says

By Anastasiia Kozlova and Amir Orusov

Aug 28 (Reuters) - Germany's chemical industry saw a sharp improvement in business sentiment in August, with companies turning positive on current conditions for the first time in four years, though the rebound remains heavily dependent on global supply disruptions, the Ifo institute said on Friday.

The business climate index for the sector rose to minus 2.4 points from a seasonally adjusted minus 26.3 in July, the Munich-based economic research institute said.

The current conditions gauge climbed to 11.6 points from minus 14.6 in July, marking its first positive reading since July 2022. However, underlying industry conditions remain weak, with German chemical production still about 20% below 2021 levels, Ifo industry expert Anna Wolf told Reuters.

Stronger exports have been driven by disruptions affecting Asian and Middle Eastern suppliers, which have boosted demand for German chemical products, although Wolf cautioned this advantage would likely be temporary. 

"As soon as Asian supply chains normalize, the substitution effect disappears," Wolf said.

The upturn was also reflected in corporate results, with BASF , Evonik  and Brenntag  having recently raised their full-year profit forecasts as supply disruptions outside Europe boosted pricing and demand.

While order books and sentiment have improved, capacity utilisation has shown little sign of strengthening, leading Wolf to caution that it was too early to speak of a recovery.

Capacity utilisation has been 73.2% so far in the third quarter, well below both the roughly 80.4% long-term average and the levels typically needed for plants to operate economically, which suggests stronger demand is largely being met from inventories rather than higher production.

Despite expecting output to rise, chemical firms continue to plan job cuts as low utilisation rates leave the sector with excess labour capacity.

Wolf said structural challenges, including high gas prices, supply security concerns and rising CO2 costs, remain unresolved, with no policy measure likely to materially improve competitiveness in the current cycle.

(Reporting by Anastasiia Kozlova and Amir Orusov, editing by Milla Nissi-Prussak)