A reprieve, not a recovery, for EU chemical producers
Per the full note from ING (edse dantuma), the Iran war delivered European chemical producers only a brief reprieve, not a recovery — production, capacity utilisation and margins improved from February to April, but June output was 0.5% lower year-over-year and still roughly 24% below early-2022 levels. The mechanism was supply disruption, not demand strength: about a quarter of Middle Eastern polyethylene capacity was damaged and Hormuz blockades cut Asian exports, while Asia sources 40-90% of its oil from the Gulf versus roughly 20% for the EU. That asymmetry gave EU producers a temporary import-competition holiday that is now fading as Gulf transport links normalise and restocking ends. The desk's implied currency read is second-order: this is an energy-relative and terms-of-trade story that argues against a durable EUR upside from industrial re-rating, and it reinforces the structural drag on EU growth that keeps rate differentials wide. With no tracked G10 pair identified for this commentary and no high-impact calendar events in the next 30 days, there is no consensus target to anchor against — the tradeable signal is thematic, not directional.
What the desk is arguing
The desk's thesis in one line: the Iran war handed EU chemicals a reprieve, not a recovery, because the improvement came entirely from weaker Asian import competition rather than any genuine demand revival. ING's Edse Dantuma frames the February-to-April production uptick as a supply-side artefact, not the start of a cyclical turn.
The supporting evidence is unusually granular. About a quarter of regional polyethylene capacity in the Middle East was damaged by the conflict, and repairs are expected to take months; Asia depends on Gulf oil, gas and raw materials for 40-90% of its crude versus around 20% for the EU, so the feedstock and energy squeeze hit Asian producers far harder. That drove three consecutive months of EU chemical production growth from February to April and a sharp Q2 earnings boost from higher prices — but by June, output had contracted again and sat 0.5% below year-ago levels and roughly 24% below early-2022.
The alternative read the desk is implicitly rejecting is that the EU chemicals improvement signals a broader euro-area industrial renaissance. ING's numbers say otherwise: once Gulf supplies to Asia recover, renewed import competition returns, and the only durable fix is an accelerated green transition — a multi-year policy story, not a positioning catalyst.
How other firms see it
Because no tracked currency pair was identified for this commentary, there are no per-firm targets to group into aligned or contrary camps. The relevant cross-asset linkage is thematic rather than FX-specific.
What does intersect this thesis is the broader European energy-import bill and its spillover into the euro area's inflation and growth outlook — both of which feed directly into the ECB reaction function and, by extension, into euro crosses like EUR/USD and EUR/CHF. Watch EUR/USD for the terms-of-trade spillover, the ECB's rate path, and any shift in European natural-gas pricing as Gulf logistics normalise.
What the calendar says
No high-impact events are scheduled for the relevant jurisdiction in the next 30 days, so there is no near-term catalyst to cross-reference. The next scheduled European data that could move this thesis would be the monthly euro-area industrial production and chemicals output prints, neither of which is on the 30-day high-impact radar as yet.
Key takeaways
01ING's Edse Dantuma frames the Iran-war boost to EU chemicals as a reprieve, not a recovery — driven by weaker Asian import competition, not demand.
02About a quarter of Middle Eastern polyethylene capacity was damaged; Asia sources 40-90% of its oil from the Gulf versus roughly 20% for the EU — the asymmetry explains the temporary EU advantage.
03EU chemical production grew for three straight months from February to April, but June output was 0.5% lower year-over-year and around 24% below early-2022 levels.
04Once Gulf oil and gas flows to Asia recover, renewed import competition returns — the only durable fix is accelerating the green transition.
05No tracked G10 pair or high-impact calendar event in this bundle, so the signal is thematic for euro-area growth and terms-of-trade rather than directional FX.
Market implications
Watch EUR/USD and euro-area industrial production prints for confirmation that the chemicals rebound has faded, and monitor European natural-gas pricing as Gulf logistics normalise — a renewed energy-cost advantage for Asian producers would weigh on the euro's terms-of-trade support. With no near-term high-impact calendar, the tradeable signal is positioning around the structural EU industrial drag rather than a scheduled catalyst.
Risks to this view
A faster-than-expected recovery of Gulf oil and gas exports to Asia would accelerate the return of import competition and validate the ING thesis, but a renewed escalation in the Strait of Hormuz or fresh damage to Middle Eastern plants would re-extend the reprieve and delay the downturn. A surprise Chinese stimulus-driven chemicals demand surge would also invalidate the structural-decline narrative by pulling Asian supply back into its own domestic market, tightening global polyethylene balances.
Articles A reprieve, not a recovery, for EU chemical producers Published 13:45 Manufacturing, Construction and Retail Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The Iran war has hit EU chemicals less severely than feared, with production, capacity utilisation and margins improving in recent months. But renewed import competition will cloud the outlook once Gulf oil and gas supplies to Asia recover. To reverse the industry's long-term decline, producers and policymakers must accelerate the green transition Edse Dantuma Polyethylene, the world's most common plastic, is used to make everyday products like packaging film, shopping bags, and bottles Boost from softer Asian competition The Iran war has hit European chemical producers less severely than feared.
After the first tariff shock in early 2025, demand initially rose as customers brought forward purchases amid supply chain uncertainty. The main boost, however, came from weaker imports. Damage to Middle Eastern plants and Strait of Hormuz blockades sharply reduced production and exports.
About a quarter of regional polyethylene capacity was damaged, with repairs likely to take months. Elsewhere in Asia, producers faced prolonged feedstock and energy shortages. Asia depends far more on Gulf oil, gas and raw materials than the EU does.
Before the conflict, Asian countries sourced 40-90% of their oil from the region, compared with around 20% for the EU. Earnings improve strongly, but production returns to previous level Reduced competition and tighter supply conditions drove three consecutive months of growth in EU chemical production from February to April, while sharp price rises provided a significant boost to second-quarter earnings. But the respite proved short-lived as output contracted again as inventory restocking faded and transport links through the Gulf improved.
By June, EU chemical production was 0.5% lower than a year earlier and remained around 24% below early-2022 levels. Meanwhile, exceptionally low Rhine water levels continue to disrupt raw-material shipments and production schedules, particularly in Germany and the Netherlands. Modest 12-month production peak was short-lived Monthly production level of the EU chemical industry, January 2022 = 100* *seasonally adjusted production, 2-month moving average Source: Eurostat "> *seasonally adjusted production, 2-month moving average Source: Eurostat Spain is Europe’s exception Germany and the Netherlands have recorded the largest production declines among the EU’s six biggest chemical producers.
Together with Belgium, they host Europe’s largest petrochemical and basic chemicals cluster: the Antwerp-Rotterdam-Rhine-Ruhr Area. Highly energy-intensive processes therefore weigh heavily on their chemical sectors. Spain stands out: chemical output has risen relatively strongly this year and was the only top-six country to record growth in both 2024 and 2025.
Its growth over the past decade, despite fluctuations, is also notable. Spain’s competitive position benefits from relatively low energy costs, a smaller share of basic chemicals, a larger consumer chemicals segment, favourable domestic demand and its location. A pipeline supplies Algerian gas, while EU recovery funds have helped accelerate the expansion of renewable power capacity.
Spain's chemical industry has held up relatively well in recent years Monthly production level of the chemical industry, January 2022 = 100* *seasonally adjusted, 2-month moving average Source: Eurostat "> *seasonally adjusted, 2-month moving average Source: Eurostat Temporary relief from competition and pressure on basic chemicals While the EU chemical industry has broadly been under pressure for years, performance varies significantly across segments. Four of the five hardest-hit categories are in basic chemicals, which produce base products and intermediates. Since early 2022, output has fallen by between 25% in dyes and pigments and 47% in other organic basic chemicals.
The latter is particularly energy-intensive and remains heavily reliant on fossil hydrocarbons for both energy and feedstock. Compared with the previous downturn, basic chemical producers benefited from weaker international competition in the first half of this year. Only agricultural chemicals fell sharply, as prolonged drought in the second quarter reduced demand for crop protection products.
Consumer chemicals, including oils, extracts, perfumes and toiletries, are the only segments to have grown both since early 2022 and since the start of this year. These downstream products are less exposed to volatile energy prices and generate more value through innovation. Speciality chemicals such as paints, coatings and cleaning products sit between the two: output remains structurally weak but has declined less than in basic chemicals.
Basic chemicals have been the hardest hit in recent years Output volume mutation per EU chemical subsector* *seasonally adjusted Source: Eurostat "> *seasonally adjusted Source: Eurostat EU chemical activity follows the ebb and flow of the Iran war The EU chemical production rebound was short-lived because of the June US-Iran ceasefire. Transport through the Strait of Hormuz resumed and energy prices temporarily fell sharply. Chinese oil refining and exports of oil-based chemicals to the EU recovered.
In July, these exports were almost 40% higher than a year earlier, while exports of organic basic chemicals – which account for about two-thirds of China’s chemical exports to the EU – rose by nearly 50%. Rebound of organics setting the tone for chemical imports from China EU imports of chemical products from China per month, % YoY Source: Eurostat "> Source: Eurostat Production expectations rise as Middle East conflict flares up again Since the conflict intensified again in July, Gulf oil, gas and feedstock shipments crucial to Asian chemical activity have fallen sharply. Although the switch from oil to coal offers a partial alternative, this is expected to increase pressure on Asian chemical production and exports again, which will provide some relief to European producers.
In August and September, most EU producers therefore expected to raise output, with expectations reaching a two-year high in September. European chemicals will benefit from weaker competition while transport remains disrupted. However, alternative Gulf routes will probably gain importance if the conflict persists, eventually reviving Asian import competition.
Oil shipments through Hormuz have recently increased to almost 80% of pre-war levels. Production expectations improve again Production expectations for the months ahead, EU chemical industry Source: European Commission "> Source: European Commission Speciality and consumer chemicals have the strongest outlook Order books improved slightly again after a brief dip in September. Yet producers’ assessment of orders remains much further below its long-term average (-26% versus -14%) than production expectations, highlighting persistent structural weakness.
The historically wide gap between upstream and downstream activities has narrowed this year, as have sentiment differences between countries. Sentiment improved in basic-chemicals-heavy Germany, Belgium and the Netherlands, but weakened in France, Italy and Spain, where basic chemicals play a smaller role. This reflects basic chemicals’ temporarily improved competitive position but also continued weak demand.
European growth remains constrained by higher inflation and only a limited recovery in end markets. Higher energy prices squeeze consumer purchasing power, hitting consumer chemicals hardest. Speciality chemicals have better prospects as investment rises and the AI boom lifts demand for products and materials used in: Sustainability and electrification, including battery materials, chemical catalysts, flame retardants, lightweight resins and composites.
Defence equipment, including reinforced plastic fibres, advanced coatings and lubricants. Semiconductors, including photosensitive polymers and ultra-pure speciality chemicals and gases. Higher energy and feedstock costs will bite more gradually Chemical prices closely track energy costs, so expensive and volatile energy will also make them higher and more volatile.
Yet the steepest rise in selling prices appears to be over. Although most producers expected to raise prices in August and September, the expectations index was stable just below its long-term average – a far milder increase than after the Iran war began. This suggests supply is gradually expanding again and price competition is increasing.
Greater difficulty passing on input-cost increases will put margins under growing pressure in the second half of the year, reinforced as higher energy costs feed through into purchase prices. Layered hedging – through long-term contracts, futures and other instruments – spreads this impact over time and helped margins improve sharply in the first half. Large chemical companies in particular use rolling hedging strategies, fixing or mitigating prices for different periods: from several months to several years, depending on the product, company circumstances and market outlook.
Selling price expectations stayed benign in September Selling price expectations for the months ahead, EU chemical industry Source: European Commission "> Source: European Commission Structural problems will resurface The European chemical industry’s structural problems are far from over. Demand has been weak for years, while competitiveness continues to erode. European energy prices are substantially higher than in the US and China, and government support is much lower than in China.
Once transport flows normalise, global overcapacity will again drive an influx of cheap imports, especially from China. Global chemical capacity grew by about 15% between 2018 and 2023 and, based on projects already underway, is expected to rise by another 10% through 2028, keeping structural overcapacity in place . Over the past decade, the EU’s share of global chemical sales halved to 13%, while China’s nearly quintupled to 46%.
The EU’s chemicals trade deficit with China widened from €21bn in 2023 to €24bn in 2025. An artificially weak Chinese yuan and US import tariffs further undermine Europe’s competitiveness. Restructuring wave is not over Despite somewhat better market conditions this year, restructuring is likely to continue.
Most major players have announced strategic interventions in recent years. Earlier this year, SABIC sold its European petrochemical operations, while Evonik is implementing a multi-year plan of divestments, closures and reorganisations. Ineos plans to close three UK chemical plants, and Shell wants to sell its entire chemicals division, including a major European cluster.
European chemical capacity shrank by 30 million tonnes, or 7%, between 2022 and 2026. Announced plant closures increased sixfold over this period, while investment fell sharply. Petrochemical capacity was hit hardest, down 11%, whereas specialty chemicals held up best, declining just 0.5%.
European production capacity structurally declining % decline in European chemical production capacity, 2022-2025* *Based on net capacity balance of announced closures and confirmed investments Source: Cefic, Roland Berger "> *Based on net capacity balance of announced closures and confirmed investments Source: Cefic, Roland Berger Climate costs pose a growing challenge Climate costs also put Europe at a competitive disadvantage to countries without carbon pricing or with much lower pricing. As free allowances are phased out, EU ETS costs will probably weigh increasingly on production costs towards 2030, both directly through companies’ own emissions and indirectly through higher electricity prices. In July 2026, the European Commission proposed extending the emissions-reduction pathway, modestly easing the cost increase, alongside more financial support for clean-technology investment.
CBAM offers only partial protection for EU chemicals Fertilisers and hydrogen are covered by the CBAM levy, which protects against imports not subject to carbon costs. In return, free allowances for CBAM products will be phased out faster, reaching zero by 2034. This will widen the cost gap between efficient, electrified installations and older fossil-based plants.
Besides the faster phase-out, CBAM has several drawbacks for chemical companies: The levy can be circumvented when a chemical feedstock is covered by CBAM but a product containing it is not. This may encourage imports of finished or intermediate products from outside the EU. The European Commission’s proposed expansion mainly targets downstream steel and aluminium products, not the wider chemical value chain.
Most chemicals remain outside CBAM. Chemical value chains involve many processes, intermediates and feedstocks, making embedded emissions difficult to calculate. Organic chemicals have therefore been excluded for now.
CBAM does not offset the EU ETS-related competitive disadvantage faced by EU companies in export markets. Promising decarbonisation projects remain operationally challenging To regain competitiveness, European plants must decarbonise faster through carbon capture and storage, process electrification, and recycled and bio-based feedstocks. Although projects are regularly cancelled, promising initiatives remain.
INEOS plans to start Project One in Antwerp this year, introducing a modern ethylene cracker that initially emits less than half as much CO₂ as the EU’s most efficient cracker and becomes climate-neutral within ten years. Spain’s Repsol aims to decarbonise its Tarragona complex through circular chemicals and methanol, large-scale green hydrogen and offshore CO₂ storage. In September, fertiliser producer Yara began shipping liquid CO₂ from Sluiskil in the Netherlands to Norway for the permanent underground storage of 800,000 tonnes of CO₂ a year by Northern Lights, a partnership between Equinor, Shell and TotalEnergies.
Such projects can quickly cost hundreds of millions of euros a year. The €5bn Project One has contributed to the doubling of INEOS’s debt since 2021, while the group suffered a loss of more than €500m in 2025. Chemicals are therefore widely seen as a hard-to-abate sector.
Governments often co-invest, but poor operating conditions, inadequate green infrastructure and weak demand for sustainable products still obstruct large-scale decarbonisation. Infrastructure and decarbonisation investment are essential Through its European Chemicals Industry Action Plan , the European Commission aims to prevent essential chemical production from leaving the EU. The European Critical Chemicals Alliance brings policymakers and producers together to identify, monitor, protect and support critical European production.
Industry supports the EU ETS goals and system, but argues that sufficient free allowances should remain until effective protection against carbon leakage and adequate demand for sustainable products are in place. This requires supportive EU policy. Europe’s chemical transformation is becoming a race against time: more plants will inevitably close, leaving only the most efficient and fastest-decarbonising companies and clusters.
Brussels’ growing focus on incentives and safeguards against unwanted international dependencies therefore offers the sector welcome support. Outlook Europe EU Chemicals Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Edse Dantuma Senior Sector Economist, Industry and Healthcare Edse Dantuma is a Senior Sector Economist. After working for the government for a few years, he joined ING in 2006, where he was a sector banker for two years. Edse studied Economics at Groningen… In this article Boost from softer Asian competition Earnings improve strongly, but production returns to previous level Spain is Europe’s exception EU chemical activity follows the ebb and flow of the Iran war Speciality and consumer chemicals have the strongest outlook Higher energy and feedstock costs will bite more gradually Structural problems will resurface Infrastructure and decarbonisation investment are essential