Closure of the Strait of Hormuz increases cost pressure in the chemical industry

The chemical-medical sector got off to a weak start in 2026. Production fell by a seasonally adjusted 2.8 percent in the first quarter. It was almost 6 percent reduce than in the previous year. The main reason was the significant decline in medical production after companies had applied pull-forward impacts in 2025 due to the risk of US tariffs. Chemical production, on the other hand, increased slightly. However, it remained below the previous year's level. At 75.1 percent, capacity utilization remained unprofitable. The job cuts continued.

A sustainable recovery is not in sight

High energy, raw material and transport costs are weighing on the sector as a result of the Middle East conflict. The closure of the Strait of Hormuz exacerbates supply chain problems and drives up oil, gaseous and naphtha prices. In parts of the chemicals business, there is a temporary pick-up in demand due to precautionary orders. However, the VCI does not expect a sustainable recovery this year.

VCI General Manager Wolfgang Große Entrup comments: “Chemistry is fighting, pharmaceuticals are preparing to even greater challenges. Few stable numbers are not a direction reversal. We don't see a mood of optimism, however geopolitical hamsters. This is a panicked intermediate peak from which parts of the chemical sector also benefit in the short term. The bare truth is: The chemistry is still under constant stress-burdened by an untamed bureaucracy, high costs and global turbulence. Germany continues to lose competitiveness if Berlin and Brussels do not take countermeasures. We have little affect on geopolitical crises-we have on our location conditions. The policy of small steps is no longer enough. Strong leadership, reliability and a clear manufacturing policy course are now crucial. This also applies to China. The massive capacity building and state-subsidized production are putting Europe's sector under growing pressure and hitting many industries to the core. however it is also clear that nationwide isolation and new trade barriers are not a good solution. The crucial thing is that the existing trade protection instruments must first be applied efficiently-only that helps rapidly. Europe needs a confident and fair approach to China-with instruments that efficiently limit distortions of competition without endangering international value chains.”

The figures at a glance:

In view of the geopolitical risks, a reliable forecast is currently only possible to a limited extent. The VCI continues to expect a difficult year to 2026: Production is likely to fall again to the year as a whole. While rising prices could bolster sales, margins remain under pressure. Chemical-medical production fell by a seasonally adjusted 2.8 percent in the first quarter of 2026 compared to the previous quarter and was just under 6 percent below the previous year. Pharma dampened the result significantly, while the chemistry increased slightly. Capacity utilization rose slightly to 75.1 percent-however remains below a profitable level. The downward direction in producer prices was stopped: compared to the previous quarter, there was a slight increase of 0.2 percent. Compared to the previous year, however, prices were still around 1 percent reduce. At the same time, the cost pressure intensified significantly: In particular, the prices to crude oil and items close to crude oil rose sharply. Sales rose by a seasonally adjusted 2.1 percent to 50.9 billion euros. however it was 5.4 percent below the previous year's figure. Additional orders at the beginning of the year point to precautionary orders and inventory build-up in view of the escalation in the Gulf.

In view of the geopolitical risks, a reliable forecast is currently only possible to a limited extent. The VCI continues to expect a difficult year to 2026: Production is likely to fall again to the year as a whole. While rising prices could bolster sales, margins remain under pressure.

Chemical-medical production fell by a seasonally adjusted 2.8 percent in the first quarter of 2026 compared to the previous quarter and was just under 6 percent below the previous year. Pharma dampened the result significantly, while the chemistry increased slightly. Capacity utilization rose slightly to 75.1 percent-however remains below a profitable level.

The downward direction in producer prices was stopped: compared to the previous quarter, there was a slight increase of 0.2 percent. Compared to the previous year, however, prices were still around 1 percent reduce. At the same time, the cost pressure intensified significantly: In particular, the prices to crude oil and items close to crude oil rose sharply.

Sales rose by a seasonally adjusted 2.1 percent to 50.9 billion euros. however it was 5.4 percent below the previous year's figure. Additional orders at the beginning of the year point to precautionary orders and inventory build-up in view of the escalation in the Gulf.