This report does not constitute a rating action.

Europe's largest chemicals companies had a mixed performance in the first quarter of 2025. The macroeconomic environment remained weak, with sluggish demand and persistent uncertainty, particularly from trade tensions and tariffs. Industrial gas players outperformed the sector, demonstrating a strong improvement in margins and resilience through price discipline, efficiency gains, and a defensive business mix.

Specialty chemicals producers posted stable to slightly higher earnings in the first quarter, supported by growth in health care, nutrition, and certain consumer-facing markets. However, most struggled with weak volumes in Europe and North America, only partly offset by strength in Asia and ongoing cost savings.

Commodity and diversified players saw subdued demand and lower volumes across most end markets, particularly automotive and construction, with volumes generally down by 1%-3% and pricing flat to slightly negative. While the Asian electronics and packaging markets were relatively strong, the U.S. saw notable volume declines and European volumes remained weak.

Demand has been weak in Europe since 2022. Capacity utilization remains 74.0%, well below the long-term average of 81.4%, according to the European Chemical Industry Council. Trends in the second half of 2024 have continued in the first quarter of 2025, with low demand and higher energy costs than in other regions weighing on sales. Nevertheless, profitability has held up thanks to cost-cutting, but a robust volume recovery in 2025 remains uncertain.

Profitability Diverged In The First Quarter Of 2025

Among the 10 largest chemicals producers in Europe, Syensqo S.A. reported the sharpest decline in profitability in the first quarter of 2025 compared with the fourth quarter of 2025. Its reported EBITDA margin was down by 380 basis points (bps) (see chart 1). This was mostly due to lower volumes in specialty polymers, an unfavorable product mix, and high restructuring costs. A higher underlying EBITDA margin in technology solutions only partly offset this.

On the contrary, Evonik Industries AG reported the highest increase in profitability, with its EBITDA margin increasing by 360 bps between the fourth quarter of 2024 and the first quarter of 2025. This was mostly thanks to a solid and resilient performance in animal nutrition and the ramp-up of cost-saving initiatives.

We believe that for most European chemical companies, the second quarter of 2025 will remain challenging, with poor visibility on demand. We project that demand will remain uncertain across several end markets because customers will need to adapt to the new trade tariffs, especially those between the U.S. and China.

Table 1

Key variables affecting rated European chemicals companies' sales growth in first-quarter 2025
	Sales	Volumes	Prices	Portfolio	Currencies	Other
Akzo Nobel	-1.0%	-2.0%	2.0%	-	-1.0%	0.0%
Arkema	5.1%	-2.5%	-0.3%	8.1%	-0.2%	-
BASF	-0.9%	-0.9%	-0.6%	0.2%	0.4%	-
Clariant	0.0%	-2.0%	1.0%	2%	-1.0%	-
Evonik	-1.0%	2.0%	-2.0%	-2.0%	1.0%	-
L'Air Liquide	5.7%	1.7%	-	0.7%	3,3%
Linde	0.0%	-1.0%	2.0%	1.0%	-3.0%	1.0%
Sika	1.1%	0.9%	1.0%	-0.8%	-
Solvay	-6.6%	-6.2%	0.6%	0.2%	-1.2%	-
Syensqo	-0.3%	-1.3%	0.0%	-	1.0%	-

Chart 1

Companies' Guidance For 2025 Holds Firm

European chemicals companies have generally adopted cautious outlooks for 2025 due to geopolitical tensions, tariff concerns, and sluggish global demand. Companies anticipate modest growth and stability in sales, largely thanks to their internal efficiency programs, pricing strategies, and selective volume improvements.

Companies are targeting margin expansion through cost reductions, operational improvements, and portfolio refinements. Many companies stress the resilience of their regional production footprints, which mitigate the direct impact of tariffs, enhance their flexibility, and allow them to sustain their supply chains in a challenging environment.

Chemicals companies that are exposed to defensive markets such as health care, food, electronics, and personal care products expect a relatively stable performance, while those with significant exposure to cyclical markets remain more conservative.

Rated companies' targets for 2025

Akzo Nobel N.V.

• Company-adjusted EBITDA above €1.55 billion in 2025.
• Gross savings of €170 million through significant headcount reductions.
• Net debt to EBITDA below 2.9x.

Arkema S.A.

• EBITDA at least equal to that in 2024 at constant exchange rates.
• Recurring cash flow of close to €600 million.

BASF SE

• EBITDA before special items of €8.0 billion-€8.4 billion.
• Free cash flow of €0.4 billion-€0.8 billion.

Clariant AG

• Local sales growth at the lower end of the 3%-5% range.
• EBITDA margin of 17%-18% before exceptional items.

L'Air Liquide S.A.

• Net profit growth at constant exchange rates.
• 460-bp improvement in the operating margin over 2022-2026.

Evonik Industries AG

• Full-year company-adjusted EBITDA of €2.0 billion-€2.3 billion.
• Free cash flow conversion (free cash flow to company-adjusted EBITDA) of about 40%.

Linde plc

• Company-adjusted earnings per share of $16.20-$16.50, a 4%-6% increase versus 2024.
• Capital expenditure (capex) of $5.0 billion-€5.5 billion.

Sika AG

• Sales growth in local currencies of 3%-6%.
• A higher increase in EBITDA than in sales and expansion of the EBITDA margin to 19.5%-19.8%.

Solvay S.A.

• EBITDA at the lower end of the €1.0 billion-€1.5 billion range, assuming a volume recovery in the second half of 2025.
• Free cash flow of about €300 million.

Syensqo S.A.

• Underlying EBITDA of at least €1.4 billion.
• Free cash flow of about €400 million.
• Capex of about €600 million.

Risks And Opportunities In 2025

The European chemicals sector remains under significant macroeconomic and geopolitical pressure, with early second-quarter data showing continued sluggish demand and cautious investment sentiment. Companies face persistent uncertainties around tariffs, trade disruptions, and recession risks that limit near-term volume-recovery prospects.

Nevertheless, ongoing strategic initiatives--particularly disciplined cost management and selective capital allocation--will help companies mitigate risks and leverage opportunities in the second half of 2025 and beyond.

Key risks in the remainder of 2025 include:

• Ongoing sluggish demand across key industrial and consumer end markets may delay the volume recovery.
• Geopolitical tensions, inflationary pressures, and recession risk cloud visibility and constrain investment and consumer confidence.
• Escalating trade disputes and new tariffs between the U.S., EU, and China threaten to disrupt global supply chains, dampen demand, and increase input costs for certain product streams.
• Overcapacity in several commodity and specialty segments, notably in Asia, could bring about further price pressure and compress margins.
• Most companies are pursuing significant cost-saving and restructuring programs and the timing and effectiveness of these may be delayed if volumes remain subdued.

Factors that could mitigate these risks include:

• A high share of regional production in Europe and the U.S. should shield the largest players from the direct effects of tariffs and improve their supply chain resilience.
• Aggressive cost-cutting, operational efficiencies, and reductions in selling, general, and administrative expenses across the sector should improve margins even while volumes remain low.
• Strategic capital allocation and a focus on high-value segments such as health care, electronics, batteries, and specialty materials should increase earnings resilience.

Tariffs Pose An Indirect Threat

We expect the direct impact of U.S. trade tariffs on Europe's largest chemicals companies to be limited, owing to the sector's high degree of local-for-local production and diversified global supply chains. Most large European players maintain substantial production footprints within their core end markets, including the U.S. This reduces their exposure to cross-border tariffs on finished goods.

However, we anticipate that the indirect effects will pose greater risks. Heightened uncertainty may dampen consumer confidence, delay investment decisions, and make demand more volatile, particularly in cyclical segments such as automotive, construction, and durable goods. Companies are focusing on elements within their control, such as cost management and price discipline, and combining these with localized sourcing strategies.

Germany's €500 Billion Infrastructure Fund Is A Long-Term Tailwind

We expect Germany's newly established €500 billion infrastructure fund to support domestic construction and industrial activity. However, we anticipate that the fund's near-term impact on European chemicals companies' earnings will be muted due to the protracted timeline for the fund's rollout and the limited visibility on project-specific allocations.

For companies with exposure to the German construction market, such as Sika and BASF, the fund could eventually underpin volume growth in infrastructure-related product lines. However, Germany represents only a modest share of Sika's and BASF's group sales (for example, less than 10% for Sika, of which only a fraction is construction). Hence the overall contribution to earnings in 2025 will remain marginal. Nevertheless, if the fund is deployed efficiently, it could revitalize demand for building materials, coatings, and specialty construction chemicals in the medium term.

Companies Balance Growth With Shareholder Returns

European chemicals companies remain cautious and disciplined about capital allocation amid sluggish macroeconomic conditions, persistent inflationary pressures, and ongoing tariff uncertainties. Mergers and acquisitions (M&A) continue, but have become more selective, with companies targeting bolt-on acquisitions that align closely with their strategic priorities.

Sika has almost completed the integration of MBCC Group and has already realized Swiss franc (CHF) 125 million in synergies, ahead of its initial plans. Similarly, Arkema's acquisition of Dow's laminating adhesives business aligns with its specialty materials strategy, demonstrating disciplined, strategic M&A rather than large-scale, transformational transactions.

Companies' capex strategies remain focused and disciplined, emphasizing high-return projects in growth segments like semiconductors, renewable energy, and high-performance materials. For instance, Air Liquide has a substantial project backlog with an emphasis on renewable-hydrogen projects and electronics. BASF continues to make significant investments in its Zhanjiang Verbund site in China despite challenging volumes. Arkema has increased its capacity in the U.S. for high-performance resins catering to the battery and electronics sectors.

Dividend policies among the largest companies remain resilient and largely progressive, even in the face of economic uncertainty. Linde, for example, has increased its dividend for the 32nd consecutive year, underscoring strong cash generation and a commitment to shareholder returns. Clariant maintains stable dividend distributions, signaling confidence in its cash flow generation capability. Arkema plans to balance shareholder returns with strategic investments by gradually increasing dividend payments, targeting a 40% payout ratio from 2024 to 2028.

BASF aims to distribute a total of €12 billion to shareholders between 2025 and 2028. Although BASF's overall shareholder remuneration will remain in line with historical levels, the group plans to reduce its ordinary dividend payments from over €3 billion in 2024 to about €2 billion per year from 2025 to prioritize capital expenditure on strategic initiatives. Once it has completed these projects, BASF aims to resume share buybacks of about €2 billion per year from 2027, further enhancing shareholder returns. This strategic approach allows BASF to ensure consistent shareholder returns while maintaining financial flexibility during a pivotal period of transformation.

Companies take a selective approach to share buybacks, and these are usually secondary to maintaining balance-sheet strength and supporting growth initiatives. Syensqo is executing a significant €300 million share-buyback program on top of stable dividends, reflecting its comfortable liquidity position and balance-sheet confidence. Linde also continues to make opportunistic share repurchases, balancing shareholder returns with ongoing investments in growth projects.

Overall, Europe's largest chemicals companies take a prudent and balanced approach to capital allocation (see chart 2). Companies prioritize targeted growth investments and shareholder returns while maintaining financial flexibility amid a prolonged period of market uncertainty.

Chart 2

Most Large Companies Will Gradually Restore Rating Headroom In 2025

Following a couple of challenging years in 2023 and 2024, we see reduced rating headroom for most large investment-grade chemicals companies in the first half of 2025. However, their performance is still within the ranges commensurate with the ratings (see chart 3). We expect them to expand their rating headroom in 2025 as they continue to cut costs and improve operating efficiency. This includes BASF, Solvay, and Clariant.

We forecast that some companies will only be able to return to ratings-commensurate credit metrics in 2026, including AkzoNobel, Arkema, and Syensqo. This will require a supportive financial policy, including well-controlled capex and highly disciplined M&A and shareholder remuneration. At the other end of the spectrum, we forecast comfortable rating headroom and ample financial leeway for industrial gas companies Air Liquide and Linde and specialty chemicals producer Evonik.

Chart 3

Speculative-Grade Companies Could Come Under Further Strain If Demand Fails To Recover

The outlook distribution among rated European chemicals companies has deteriorated following a challenging 2024. As of the first quarter of 2025, the proportion of companies with ratings on negative outlooks or CreditWatch negative stands at 28%, up from 25% a year before and just 17% in the first quarter of 2023 (see chart 4).

The pronounced decline in stable outlooks from 79% in 2023 to just 63% in our latest assessment mirrors the erosion in rating momentum. The backdrop to this is persistent demand weakness, cost inflation, and mounting geopolitical and trade-related uncertainties.

The bias in rating actions is decisively negative. Since year-end 2023, there have been 19 downgrades versus six upgrades (see chart 5). This skew highlights an ongoing deterioration in credit quality, which has been particularly acute at the lower end of the rating spectrum. More than one-third of speculative-grade companies have negative outlooks as of the end of first-quarter 2025--unchanged from the previous year--compared to just 11% of their investment-grade peers.

This persistent divide underscores the difference between speculative-grade and investment-grade companies (see chart 6). Speculative-grade companies typically lack the diversification, scale, and pricing power of their investment-grade counterparts, leaving them more exposed to concentrated supply chains, volatile end markets, and abrupt margin swings.

Conversely, the handful of positive outlooks--two each for investment-grade and speculative-grade companies--reflect company-specific catalysts rather than a broader sector recovery. For example, the positive outlook on Borealis AG is tied to the transformative impact of its merger with Borouge and then with Nova Chemicals, which should meaningfully strengthen its business risk profile.

The most recent upgrades have followed post-default restructurings and capital-structure resets, including for Ignition Topco B.V. and OQ Chemicals International Holding GmbH. At the same time, the serial downgrades of Nitrogenmuvek Zrt. and Lune S.a.r.l. reflect refinancing challenges for Nitrogenmuvek and weak cash flows and performance for Lune.

In sum, the outlook distribution in early 2025 is a clear reflection of a sector under stress, with a negative outlook bias that is likely to persist absent a material improvement in demand fundamentals or a reduction in macroeconomic and geopolitical risks.

Chart 4

Chart 5

Chart 6

Related Research

• Most European Corporates Can Manage The Immediate Effects Of U.S. Tariffs April 4, 2025
• U.S. Tariffs Aren't The Main Problem For European Chemical Companies March 6, 2025
• Issuer Ranking: Global Chemical Companies--Strongest To Weakest Jan. 15, 2025
• Industry Credit Outlook 2025: Chemicals Jan. 14, 2025

Primary Contact:	Oliver Kroemker, Frankfurt 49-693-399-9160; oliver.kroemker@spglobal.com
Secondary Contact:	Arianna Valezano, Milan 44-20-7176-3838; arianna.valezano@spglobal.com