German Chemical Firms Warn of Output Cut on War’s Ripple Effect

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(Bloomberg) — Germany’s chemical industry warned shockwaves from the Iran war are beginning to ricochet through Europe’s largest economy with a number of companies dialing down output as supply chains seize up and energy costs surge. 

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While costs rise, disruption to global shipping routes carrying vital raw materials and intermediate goods is now compounding the strain, Germany’s VCI chemical association said at its annual press conference in Frankfurt. The issues raise the specter of a fresh industrial slowdown in the continent’s industrial heartland.

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“There’s a spiral spinning in the wrong direction and we can only hope it is over quickly,” VCI Director General Wolfgang Große Entrup told reporters, describing a mounting price and supply shock emanating from the conflict. “The longer it lasts, the more powerful impact it will have.”

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The industry, which underpins daily consumables from carmaking to pharmaceuticals and agriculture, is being squeezed on multiple fronts. European gas prices — a key input for producing ammonia and nitrogen-based fertilizers — have jumped more than 50% since the outbreak of the war. The war is now also throttling output of intermediate products from Asia, threatening to disrupt production lines in Germany.

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Asian petrochemical companies, grappling with tight supplies of naphtha — a crude oil derivative used to make plastics, solvents and other chemical building blocks — have cut output, exacerbating bottlenecks further down the chain. The result is a feedback loop of rising costs and dwindling availability that is spreading across sectors.

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The VCI represents more than 1,900 companies spanning chemicals, pharmaceuticals and related sectors, from global heavyweights such as BASF SE, Bayer AG and Evonik Industries AG to hundreds of small and medium-sized, family-owned manufacturers. Together, the industry employs roughly 480,000 people in Germany and accounts for one of the country’s largest industrial export sectors, making it a bellwether for the broader health of Europe’s biggest economy.

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