EU chemicals industry shows 'fragile improvement' amid high costs

The European chemical industry is showing signs of a fragile recovery in early 2026, moving away from the deep contraction experienced throughout 2025. While business confidence and inventory levels have stabilized, the sector continues to face significant headwinds from weak demand and a widening energy cost gap compared to international competitors. This transition period is critical for the industry as it attempts to navigate structural competitiveness challenges that threaten its long-term production base in Europe.

According to the European chemical industry council Cefic, the EU27 chemical sector transitioned from a deep contraction in 2025 to a "fragile improvement" in the first quarter of 2026. Business confidence saw a notable rise to -9% in April from a low of -19% in October 2025, while order-book assessments improved to -26%. Additionally, stocks of finished products fell sharply to reach a near-balanced state by April, which Cefic identified as one of the most significant improvements over the previous year. Despite these gains, the association warned that the sector has not yet entered a sustainable recovery phase, particularly as employment expectations continue to deteriorate.

A primary obstacle to a robust recovery is the structural competitiveness challenge posed by high energy costs in Europe. Natural gas prices in the EU averaged approximately €42/MWh between January and April 2026, which is 3.3 times higher than the US average of roughly €13/MWh. This significant price gap weighs heavily on energy-intensive segments, including polymers, basic chemicals, and other organic chemicals. Consequently, while capacity utilization edged up to 74.3% in the second quarter, it remains well below the long-term industry average of 81.3%.

Production and trade data further illustrate the uneven nature of the current market, with overall EU27 chemical production falling 3.2% year-on-year in the first quarter. Performance varied significantly by country, as France recorded a 2.4% growth while Germany, Italy, and the Netherlands saw declines of 4.3%, 7.7%, and 9.4% respectively. Trade activity also weakened, with exports falling 12.4% to €4.6 billion and imports dropping 15.7% to €4.8 billion. Cefic concluded that the slight increase in the trade surplus to €6.7 billion was a result of "import compression" due to weak demand rather than improved competitiveness, posing a medium-term risk to Europe's production base.