Overcapacity & trade risks cloud global chemicals recovery: Fitch

Accelerated asset restructuring will gradually help rebalance global markets but is unlikely to deliver meaningful relief in the short term, Fitch said in its Global Chemicals Outlook 2026.

Conditions could worsen further in 2026; as substantial new capacity comes online in China, particularly in ethylene and polyolefins, even as plant shutdowns accelerate globally. As a result, the sector is expected to remain structurally oversupplied, keeping margins under pressure.

Trade tensions remain a key risk. Although tariff pressures have eased somewhat in 2025, volatility in protectionist measures is likely to persist, weighing on sentiment across industrial markets and complicating recovery efforts for chemical producers.

Against this backdrop, Fitch expects companies to remain highly disciplined in 2026, focusing on protecting balance sheets through cost reductions, capex cuts and tighter financial policies. Many producers have already implemented cost-cutting programmes, project deferrals, asset closures and dividend reductions or suspensions, measures that should strengthen cash generation at the bottom of the cycle. Further restructuring and consolidation are seen as likely as companies seek resilience in an uncertain operating environment.

In North America, chemical demand is expected to remain weak in 2026, reflecting slowing US growth and continued softness in consumer durables, construction and automotive markets. Earnings dispersion will persist depending on issuers’ end-market exposure and cost positioning. While capacity curtailments and closures of higher-cost plants may offer limited pricing support, they are unlikely to materially improve conditions for petrochemical producers. By contrast, demand in electronics, packaging and pharmaceuticals is expected to show moderate momentum.

European producers are facing acute pressure from rising imports from lower-cost regions, driven by global oversupply and trade flows redirected by trade tensions. Weak economic growth and subdued industrial activity are expected to constrain demand further. Fitch noted a growing number of anti-dumping investigations, which could eventually provide some protection if countervailing duties are imposed, as seen in polyvinyl chloride. High-yield issuers remain particularly vulnerable due to smaller scale, geographic concentration, weak interest coverage and heavy debt maturities.

In China, Fitch expects rated chemical issuers to maintain broadly stable operating performance despite high leverage, supported by their large scale and leading market positions. Many ratings continue to benefit from government support, given the state-owned backgrounds of several issuers.

The Latin American petrochemical sector is also set to remain under pressure amid weak market conditions, subdued demand and economic uncertainty linked to geopolitical and trade risks. Fitch said issuers in the region are responding through divestments, investment deferrals, cost-cutting and asset rationalisation to mitigate the downturn.

ALCHEMPro News Desk (HU)