German chemical sector mood slips in October after two-month recovery, Ifo says

By Anastasiia Kozlova and Amir Orusov

Nov 3 (Reuters) - Germany's chemical industry business climate deteriorated in October, erasing two months of improvement, as structural challenges overshadowed support from Middle East-related supply disruptions, the Ifo Institute said on Tuesday.

The business climate index for the sector slipped below zero again, falling to minus 5.9 points in October from a seasonally adjusted 3 points in September.

The Munich-based economic research institute said business expectations deteriorated sharply to minus 13.8 points from minus 1.5.

"Restructuring and site closures in the chemical industry are a cause for concern for the companies," said ifo industry expert Anna Wolf.

German chemical companies have stepped up cost-saving and restructuring amid a weak economic backdrop and growing competition from Asian producers.

"Because the chemical industry is organized in integrated clusters, closures and portfolio adjustments at one site affect all downstream producers within the cluster," Wolf told Reuters. Lasting improvements would require cheaper energy and a reliable policy framework, she added.

MIDEAST DISRUPTION A TEMPORARY BOOST

Companies are not counting on a quick resolution to geopolitical uncertainties in the Middle East and that will likely keep part of the supply-related support for German producers in place, Wolf said.

Demand improved in October from the previous month, with new orders rising and companies planning to increase production and push through further price increases.

Capacity utilisation improved slightly in the third quarter from the previous three months, but remained below the roughly 80% level considered necessary for profitable operations, Wolf said.

"Higher utilisation driven by supply disruptions and inventory build-up is not a reliable basis for halting restructuring," she added.