European chemicals won the quarter, not the war

Since the conflict in the Middle East began, European chemical producers have widely been seen as beneficiaries of their rivals’ disruption. Earnings have picked up, but 12-month EBITDA at key manufactures remains roughly a quarter below its 2019 level. We think the gains reflect their competitors’ problems rather than any meaningful improvement in Europe’s own position, and that they are unlikely to last.

What you will learn:

• The gains reflect rivals’ problems rather than Europe’s strength. With Asian producers short on feedstock and facing steeper cost increases, since their chemicals sectors rely heavily on oil and naphtha imported from the Middle East, some buyers have turned to European suppliers who could still deliver.
• Our implied energy cost index shows the gap with Asia narrowing. With European gas prices rising ahead of winter and EU gas storage at its lowest level for this time of year in more than a decade, European costs are set to fall less steeply than Asia in 2027, eroding Europe’s early advantage.
• We now expect European chemicals output to contract in 2027, having forecast growth of 1.4% for the year before the conflict.