Fitch Ratings maintains a "deteriorating" outlook for the global chemicals sector due to massive overcapacity and increased trade tensions, which have hindered near-term recovery prospects.

According to Fitch, the sector's outlook is still negative because an imbalance between supply and demand and trade conflicts are impeding a quick recovery. While the acceleration of asset restructuring will eventually help rebalance global markets, its effects are not expected to be felt in the short term.

Fitch says that the situation could worsen in 2026. Fitch's Global Chemicals Outlook 2026 anticipates significant capacity additions in China (e.g., in ethylene and polyolefins), which will likely offset global plant shutdowns and keep the market oversupplied. This sustained oversupply will continue to pressure margins.

Increased trade tensions in 2025 have already impacted company performance. Although tariff pressures have eased recently, the volatility of protectionist measures is expected to remain a persistent concern for industrial market sentiment, Fitch says.

Fitch expects companies, in this context, to be highly disciplined in 2026 to protect their balance sheets, taking the necessary measures to reduce costs and capex and adjust their financial policies. Most companies have implemented cost-cutting, project deferrals, asset closures and dividend reductions or suspensions, which will strengthen bottom-of-cycle cash generation. Further restructuring and consolidation appear likely to ensure resilience in an uncertain environment.

Fitch expects North American chemical demand to remain weak in 2026, reflecting the slowdown in US growth and ongoing softness in key consumer durables, construction, and autos markets. Earnings dispersion will persist based on issuers' end-market exposure and cost position. Demand across consumer durables, construction, autos, and industrials remained weak through 3Q25, and leading indicators and management commentary suggest limited prospects for a meaningful near‑term uplift in these cyclical markets. Curtailments and closures of higher‑cost capacity will offer only modest pricing relief for petrochemical producers. By contrast, we expect demand momentum in electronics, packaging and pharmaceuticals to continue at a moderate pace in 2026.

European producers are facing acute pressure from increasing imports from lower-cost regions, driven by global oversupply and trade tensions redirecting trade flows. Demand is likely to remain constrained by weak growth and muted industrial activity in the region. Import pressure has also led to a rising number of anti-dumping petitions and investigations, which may ultimately help protect local producers if authorities impose countervailing duties, as seen in the polyvinyl chloride market for example. High-yield issuers in the region are particularly exposed to the downturn due to their small size, geographic concentration, weak interest coverage and high debt with concentrated maturities.

The rating agency expects rated Chinese chemical issuers to maintain stable operating performance despite high leverage, supported by their large scale and leading market positions. Many of their ratings are also anchored by government support, given their state-owned enterprise backgrounds.

The petrochemical sector in Latin America will face ongoing challenges from weak market conditions, subdued demand and economic activity dampened by geopolitical and trade uncertainty. Issuers are mitigating this negative trend by pursuing divestitures, investment deferrals, cost cuts and asset rationalisation.