German chemical industry confidence improves sharply in June, Ifo says

By Amir Orusov and Anastasiia Kozlova

July 1 (Reuters) - Business confidence in Germany's chemical industry improved sharply in June, helped by lower energy prices and a short-term lift in demand tied to Middle East supply disruptions, the Ifo institute said on Wednesday.

The institute's confidence index for the sector rose to minus 17.8 points from a seasonally adjusted minus 29.0 in May, as companies rated both their current situation and expectations more positively. The gauge for current business conditions climbed to minus 2.9 from minus 16.5.

Ifo industry expert Anna Wolf cautioned against reading too much into the rebound, noting it was driven mainly by higher orders for basic chemicals linked to disruptions around the Strait of Hormuz rather than by a broad recovery across the sector.

"It's still too soon to talk of a sustainable turnaround," Wolf said in a statement. "But a glimmer of hope is finally emerging again for the first time in a long while."

She said supply interruptions from the Middle East had hit Asian manufacturers especially hard, prompting some customers to switch purchases to German suppliers. That helped steady production and improve export expectations.

Improving demand and stronger margins have also led some companies, including Evonik and Brenntag, to raise their full-year guidance. Still, Wolf said supply chains for intermediate goods remained strained and most chemical companies expected prices to rise again in coming months.

"A sustainable turnaround would require a lasting improvement in international competitiveness on production costs, above all energy, together with demand-driven growth," she said.

Wolf added that most of the recent improvement had come from within the European Union, where customers had increasingly turned to domestic suppliers, while German chemical producers had seen little improvement in their competitive position outside the bloc.

(Reporting by Amir Orusov and Anastasiia Kozlova, editing by Thomas Seythal and Matt Scuffham)