Germany's chemical sector has been a backbone of the country's economy for decades. Lately, that backbone has been under serious strain.
Revenue for the chemical-pharmaceutical industry slipped 1% during the same stretch. Those are not blips - they are signs of something bigger.
The VCI represents about 1,900 companies in the sector, so their forecast carries weight.
Here is where things get a little tricky. The numbers would have looked even worse if not for a global crisis.
The US-Israeli war on Iran gave Germany's chemical makers a short-term boost. How? The conflict blocked the Strait of Hormuz, which hurt Asian competitors more than it hurt German companies.
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Meanwhile, customers started stockpiling chemicals out of fear that supplies would dry up. That rush to buy padded the German industry's sales.
Markus Steilemann, the VCI's president and the CEO of Covestro AG, put it plainly: "We are experiencing only a respite, not a change in trends." In other words, the war created a temporary shield, not a permanent fix. Once stockpiling ends and supply chains reroute, the underlying problems will come roaring back.
So what is actually going wrong? A few things, and they are all baked into the German system.
Production costs are high. Labor costs are high. And competition from other parts of the world - especially Asia and the Middle East - is getting tougher by the year. German chemical companies are caught between rising expenses and falling selling prices.
That pressure has already forced some of the biggest names to restructure. Last year, Abu Dhabi National Oil Co. - a state-owned oil giant - paid €12 billion ($13.8 billion) to take over Covestro AG, a polymers maker that supplies phone and car manufacturers. Also last year, Europe's biggest chemical company, BASF SE, transferred control of its coatings operations in a €7.7 billion deal.
Those are not small moves. When the biggest players start selling off pieces or getting bought entirely, it tells you something about the direction of the industry.
For investors, this story is not just about Germany. The chemical industry touches everything from car paint to smartphone cases to industrial adhesives. When Germany's chemical sector struggles, the ripple effects reach global supply chains.
The VCI is calling for major regulatory changes - lower taxes, lower labor costs, faster permits, less red tape. Whether those changes come is an open question. But the industry's message is clear: without reform, the structural crisis will get worse, not better.
The bottom line: The temporary boost from the Middle East conflict created a brief sugar high for German chemical stocks. But once that sugar wears off - and it will - the companies that cannot adapt to high costs and global competition will face more pressure. That means more restructurings, more asset sales, and possibly more takeovers from foreign buyers with deeper pockets.
For your portfolio, it pays to watch which companies are cutting costs and which are just hoping for another crisis to bail them out. The ones doing the hard work now are the ones more likely to survive the long haul.
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