Germany's crisis-hit chemical industry seeks revival

Germany's chemical sector stands as a core pillar of the nation's economy, ranking third after automotive and mechanical engineering. It generates hundreds of billions in annual revenue and directly employs about half a million people.  

The industry, however, has been beset by crisis in recent years, weighed down by high energy costs, growing regulatory burdens, a persistently weak economy, and intense competition from abroad.

Chemical production requires large amounts of energy, not just electricity but also heat, steam and pressure. So, when energy prices rise, it erodes firms' global competitiveness and profitability.

Since Russia's full-scale invasion of Ukraine in February 2022, and the resulting loss of cheap Russian gas, German chemical companies have faced some of the highest energy prices globally.

The US‑Israel war against Iran this year has compounded these challenges. It triggered another spike in energy prices while disrupting supply chains and causing shortages of key raw materials.

"Energy prices, especially natural gas prices, have doubled since the war in Ukraine started," said Christof Günther, managing director of InfraLeuna, a German infrastructure and services company that operates the Leuna Chemical Park, the nation's largest integrated chemical site.

"And they [energy prices] have just doubled again temporarily due to the war in Iran. So, we are dealing with extremely high energy costs," he told DW.

No sign of turnaround this year for Germany's chemical industry

Overall revenue generated by German chemical firms has dropped by around 22% since 2022, to €220 billion ($256 billion) in 2025, according to the German chemical industry association VCI.

The trade group, which represents around 2,300 companies, said there is no sign of a turnaround, with stagnation or further declines in production likely this year. It stressed that reducing natural gas costs is essential to strengthening Germany as an industrial location.

VCI pointed out that natural gas is not just an energy source for the chemicals sector. It's also a critical feedstock that cannot be replaced overnight, leaving companies highly exposed to sustained price pressures.

"Alternatives such as biomethane can support the transformation, but they are still in the ramp-up phase and are currently available only to a limited extent,” the association said in a statement to DW.

How to restore Germany's competitiveness?

Anna Wolf, chemicals industry expert at the Munich-based ifo Institute, an economic think tank, said the industry has done most of what it can to overcome the energy challenges, pointing to investments in energy-efficient production and recycling.

The burden is now on policymakers, she stressed, to ensure that energy is available "in sufficient quantities, at internationally competitive prices, and through infrastructure that the chemical industry can actually rely on for its long investment horizons."

Without reliable, affordable energy and the infrastructure to deliver it, "no other measure — whether on regulation, trade or innovation — will be sufficient to restore competitiveness," the expert told DW.

Compounding the crisis is a prolonged economic stagnation in Germany and tepid growth across Europe, resulting in subdued demand for chemical products in the region.

"Market conditions have shifted to the detriment of the German chemical industry in recent years," Martin Gornig, research director for industrial policy at German Institute for Economic Research (DIW Berlin), told DW.

In addition to the energy woes, he explained, this is primarily due to weak economic demand for chemical products in Europe. "Should the domestic economy in Europe pick up again, the outlook for the German chemical industry will also improve."

Germany is losing jobs and investment

The weak business climate has already prompted many companies to delay investment, scale back production and slash jobs in Germany.

The German chemical giant BASF, for instance, has embarked on a major cost-cutting drive in its home market while investing aggressively abroad, particularly in China. The company has also outlined plans to shift certain back-office jobs from Germany to Asian countries like India and Malaysia as part of a broader restructuring of its workforce.

Overall, the industry has lost over 13,000 jobs since 2022, reported chemeurope.com, a specialist portal for the chemical sector.

Despite the tough conditions, Germany currently remains central to companies' core chemical production operations.

And a full-scale relocation abroad is unlikely, say experts, given the complex and interconnected nature of the industrial processes and ties to other companies in the country. 

If there's no improvement in the operating environment, however, businesses are likely to expand production capacity elsewhere.

Production shift abroad puts supply at risk

But ifo expert Wolf stressed that Germany and Europe can no longer rely on market forces alone and accept that strategically important sectors such as chemicals will move abroad when they lose competitiveness.

"That logic worked in an open world economy with reliable partners, but reliable partnerships have become scarce," she said.

In a world of increasingly fragile alliances and unreliable partners, though, losing industrial branches that are systemically relevant would risk undermining Europe's security of supply, Wolf said.

To boost the sector, along with other energy-intensive industries, the German government wants to subsidize electricity costs.

It is also pushing for reforms to the EU's carbon pricing system that companies complain unfairly burdens them. Berlin wants to make changes to the scheme to ensure it also protects industrial competitiveness while pursuing climate goals.

The VCI welcomed the measures but said more is needed, urging tax incentives and guaranteed long‑term gas supply. It also called for a greater use of biomethane — a renewable fuel produced by removing CO2 and other impurities from raw biogas, which can be used as a substitute for natural gas.

It also called for addressing lengthy permitting procedures and growing regulatory burdens, saying they are holding back investment and production. "The industry urgently needs reliable and internationally competitive framework conditions. Isolated measures are no longer sufficient."

Sami Behbehani contributed to this article.

Edited by: Andreas Becker