European Chemicals sector outlook for 2025 and 2026: UBS

UBS maintains a cautious outlook on European chemicals, projecting modest volume growth of 2.6% in 2025 and 3.2% in 2026, citing sluggish macro indicators and tariff uncertainty. The firm forecasts sector EBITDA growth of 4% in 2025 and 7% in 2026, below market expectations, and favors defensive sub-sectors like Consumer Chemicals and Industrial Gases, with Buy ratings on DSM Firmenich, Air Liquide, and Arkema. Conversely, UBS downgraded Akzo Nobel to Neutral, citing priced-in cost savings, and flagged headwinds for K+S, Umicore, and Victrex.

Analysis

UBS projects a subdued recovery for European chemical volumes through 2025 and 2026, forecasting modest year-on-year growth of 2.6% and 3.2% respectively, prompting a cautious sector stance. This outlook is attributed to sluggish macroeconomic indicators, persistent tariff uncertainty—expected to contribute to global GDP growth in 2025-2026 lagging 2024 levels by 60 basis points—muted momentum in cyclical end-markets, low capacity utilization, and elevated inventory levels in sectors like healthcare and construction. Consequently, UBS forecasts sector-wide EBITDA growth of 4% in 2025 (in line with consensus) but only 7% for 2026, significantly below the market's 10% expectation, deeming double-digit growth ambitious without substantial volume or price improvements in the second half of 2025.

Within the sector, UBS identifies notable divergences. Defensive sub-sectors like Consumer Chemicals and Industrial Gases are preferred, with Buy ratings on DSM Firmenich AG (AS:DSFIR), Air Liquide SA (EPA:AIRP), and Arkema (EPA:AKE) due to better volume and earnings visibility; Consumer Chemicals are seen achieving high-single-digit EBITDA growth with mid-single-digit volume growth. Conversely, UBS is significantly more bearish than consensus on Specialties (projecting 1% EBITDA growth versus 9% consensus) and Diversifieds (7% versus 15% consensus) for 2026. Specific company actions include downgrading Akzo Nobel NV (AS:AKZO) to Neutral, with its price target cut to €64 from €70, as cost savings and divestiture benefits appear priced in, projecting a slowdown in EBITDA growth post-2026. K+S AG (ETR:SDFGn), Umicore (EBR:UMI), and Victrex (LON:VCTX) are listed as least-favored due to identified structural or end-market headwinds. The article also highlights that an external AI analysis by InvestingPro did not identify Air Liquide as a top undervalued stock, contrasting with UBS's positive view.

Key Decisions for Investors

• Adopt a defensive investment stance towards the European chemical sector for the next 12 months, reflecting UBS's cautious outlook on volume recovery and its 2026 EBITDA growth forecast which significantly trails consensus.
• Favor investments in Consumer Chemicals and Industrial Gases, specifically considering UBS Buy-rated names like DSM Firmenich (AS:DSFIR) and Arkema (EPA:AKE); for Air Liquide (EPA:AIRP), also Buy-rated by UBS, investors should note the article's reference to an external AI analysis suggesting it may not be a top undervalued pick, warranting thorough due diligence.
• Approach Specialties and Diversifieds sub-sectors with caution due to UBS's substantially lower EBITDA growth projections versus market expectations, and re-evaluate Akzo Nobel (AS:AKZO) following its downgrade to Neutral and price target reduction, reflecting that its near-term catalysts appear largely priced in.
• Closely monitor least-favored names such as K+S (ETR:SDFGn), Umicore (EBR:UMI), and Victrex (LON:VCTX) for persistent adverse structural or end-market conditions, and track macroeconomic data, tariff impacts, and inventory levels as key determinants of the sector's performance.