Germany's chemicals sector sees signs of recovery as demand picks up

By Tristan Veyet and Bartosz Dabrowski

May 15 (Reuters) - After a couple of tough years, some German chemicals makers saw signs of recovery in orders and volumes in the first quarter, driven by the improving economic situation and higher demand outside of Europe.

The industry in Germany, Europe's largest chemicals producer, suffered heavily throughout 2023 due to high production costs and weak demand amidst high inflation.

But some groups flagged growing demand in the January-March quarter, with speciality chemicals maker Evonik reporting a rise in sales volumes for the first time in two years, and Wacker Chemie beating profit expectations thanks to an increase in orders.

Potash and salt miner K+S said stronger demand at the start of the year raised its likelihood of reaching the higher end of its 2024 guidance.

"The picture that emerges for European chemicals following a tough 2023 is of a grinding, periodically inconsistent recovery," Berenberg analyst Sebastian Bray told Reuters in an email.

"Demand ... seems to have improved to the point that I would expect 2024 industry utilisation to rise well beyond the estimated low-mid 70s percent that characterised much of 2023," Bray added.

Germany's chemicals industry association VCI raised its outlook for the year on Wednesday, saying it expects production volumes including pharmaceuticals to rise by 3.5%. It had previously expected flat volumes with overall industry sales set to rise by 1.5%.

VCI said growth in the first quarter was driven mainly by orders from non-European markets, led by China. It expects German domestic orders to pick up slightly in the second half of the year.

The lobby's forecast echoes the Ifo economic institute's latest barometer for Germany's chemical industry, which improved slightly in April, with companies expecting higher orders from abroad and to expand production in the coming months.

"From my point of view, the situation is set to improve from here on, based on slowly increasing demand in many sectors," Warburg Research analyst Oliver Schwarz said. (Reporting by Tristan Veyet and Bartosz Dabrowski in Gdansk; Editing by Milla Nissi)