Temporary uptick for Dutch chemicals masks ongoing challenges
The Dutch chemical industry is experiencing a temporary respite due to reduced Asian competition driven by geopolitical tensions, representing a short-lived opportunity for growth. Per the full note from ING Research, while chemical production has seen a slight uptick fueled by precautionary stockpiling by customers, the underlying challenges remain potent with overcapacity and high operational costs looming on the horizon. As trade normalizes, these factors will likely pressure production levels further. With no high-impact events on the calendar for the Netherlands, traders should be prepared for potential adjustments in production forecasts in the coming months.
What the desk is arguing
The desk views the recent uptick in the Dutch chemical sector as a transient adjustment rather than a structural recovery. According to ING, stockpiling by customers responding to reduced competition from Asia gives temporary leverage to Dutch producers, despite longstanding challenges such as overcapacity and structural cost pressures.
Production levels remain below historical peaks, measuring over 25% less than the highs recorded in early 2022. This data underscores the fragility of the sector's position as it relies significantly on external market dynamics, indicating that the industry may likely retract once supply chains normalize post-geopolitical disruptions.
Where it sits in our coverage
Currently, our consensus target for the EUR/USD pair stands at 1.075, with a range between 1.04 and 1.12. Specific target firms include: - jpmorgan: 1.10 (Mar-26) - bofa: 1.04 (Mar-26)
This assertion aligns closely with jpmorgan, which expects continued strength in the Eurozone at a higher target, while bofa presents a more cautious stance reflecting potential headwinds in the region's economic recovery.
How other firms see it
Firms aligned with ongoing strength in the chemical sector include jpmorgan, which anticipates EUR appreciation against the USD, and other similar intensity participants. In contrast, bofa holds a more bearish perspective, reflecting broader concerns over economic resilience and the EU's future growth prospects.
Key currency pairs that should be monitored in light of this commentary include EUR/USD, particularly as it relates to regional production dynamics and adjustments by the European Central Bank according to production indicator trends.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Dutch chemical sector shows temporary production growth due to reduced Asian competition.
- 02Measures indicate that production levels remain significantly below historical highs, suggesting fragility.
- 03Structural challenges such as overcapacity and operational costs are set to weigh on future output.
- 04Geopolitical tensions provide a short window for relief but risk reverting to a more challenging environment.
Market implications
Traders should analyze the EUR/USD closely, particularly movements toward the mid-range target of 1.075 in the context of production forecasts. Any signs of stabilization in Asian chemicals output could indicate a reversal in pricing dynamics.
Risks to this view
The primary risk to this thesis centers around a swift restoration of imports through the Strait of Hormuz. Should Asian production recover quicker than anticipated, it could lead to increased competition and downward pressure on Dutch chemical prices, ultimately impacting forecasts.
Articles Temporary uptick for Dutch chemicals masks ongoing challenges Published 14:03 Manufacturing, Construction and Retail The Netherlands Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The Dutch chemical industry has gained a bit of breathing room as the initial closure of the Strait of Hormuz reduced Asian competition and triggered temporary stockpiling. But when trade flows normalise, overcapacity, cheap imports, tariffs and high costs will weigh on output once again Edse Dantuma The Dutch chemical industry has seen a welcome period of relief, but output is likely to come under pressure again as trade flows normalise Middle East conflict offers temporary relief from import pressure The outlook for the Dutch chemical industry has improved slightly since the initial closure of the Strait of Hormuz earlier this year. Customers have been building additional inventories as a precaution, while foreign competition has eased.
This gives Dutch chemical producers more room for production growth in the second quarter, and probably also the third. The closure has caused feedstock shortages for Asian producers, who rely heavily on oil, gas and derivatives from the Gulf region. This has led to a sharp scaling back of Asian oil refining and petrochemical production, and to lower chemical exports to Europe.
Dutch and other European chemical producers are much less dependent on the Gulf region, which accounts for around 20% of their total feedstock needs. Chemical production has increased slightly Monthly production level of the chemical industry, January 2022 = 100* *Seasonally adjusted production, 2-month moving average Source: Statistics Netherlands, ING Research "> *Seasonally adjusted production, 2-month moving average Source: Statistics Netherlands, ING Research Pressure on chemical output will rise again when Hormuz reopens further Even so, chemical production is still more than 25% below the peaks reached in late 2017 and January 2022, and the downward trend has not yet been broken for any sustained period. If Hormuz reopens further and stays open, production and transport in the Gulf region and Asia can recover.
The downside is that demand for European chemical products will then weaken again due to cheap imports from China. Shipping traffic through the Strait is expected to take several months to recover to pre-war levels, and even this assumes the very shaky ceasefire between the US and Iran holds. Given recent comments made by US President Donald Trump that the truce is "over", this appears increasingly uncertain.
Global overcapacity, cheap imports and tariffs will continue to hurt structurally... Global petrochemical production capacity has expanded by 65% over the past 15 years and, based on projects already under way, will continue to grow, particularly in China. The resulting overcapacity and inflow of cheap, partly subsidised chemical imports from Asia will keep pressure on European producers.
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