UBS Chemicals Sector: Will Higher Prices Lead to Lower Volumes?

UBS published a chemicals sector report examining whether rising energy costs from Middle East conflicts will drive price increases that ultimately suppress volumes. Since the conflict began, chemical spot prices have surged approximately 50%. UBS expects elevated prices combined with a weak macroeconomic environment to drag down volumes in the second half of 2026. Analysis indicates that the diversified chemicals subsector must raise prices by 13% to offset current oil and gas costs. If the Strait of Hormuz experiences prolonged disruption, price increases of 33% would be necessary, assuming oil at $150 per barrel and European gas at EUR 100 per megawatt-hour. Historical data demonstrates that volume declines typically follow significant price hikes; for instance, after diversified chemical prices rose 17% in 2021, volumes fell 3% in 2022. The fertilizer sector faces acute pressure, with current fertilizer costs up 50% year-over-year against only an 8% rise in wheat prices, severely impacting farmer affordability. UBS recommends a defensive strategy over the next twelve months, favoring Air Liquide, Novonesis, and Croda, while identifying Lanxess, K+S, and Victrex as the least preferred names.