European chemical manufacturers face mounting margin risks as a sharp run-up in oil and gas prices squeezes input costs, J.P. Morgan said in a note dated Wednesday. The bank calculated that, unless firms are able to materially lift selling prices, earnings could come under significant pressure over the next 12 months.
Brent crude has climbed roughly 35% since late December 2025, while the European TTF natural gas contract has risen about 84% across the same interval. J.P. Morgan attributes the spike to intensifying supply disruptions in the Middle East, including constraints around the Strait of Hormuz and suspended Qatari LNG output.
The brokerage laid out a scenario in which current elevated energy prices persist and companies are able to pass through only half of the incremental cost burden to customers. Under those assumptions, J.P. Morgan estimated a 15% to 25% downside to Bloomberg FY27 adjusted EBITDA consensus for the most exposed chemical companies, with earnings per share facing a still-larger negative impact.
Among the firms singled out as most vulnerable were Lanxess, BASF, Arkema, Evonik, and Wacker. Lanxess, the note said, carries the highest direct exposure to oil-based raw material inflation, with such costs representing 62.4% of its 2026 consensus EBITDA.
On the pricing side, Arkema would require the largest increase to fully offset higher oil-based raw material costs, needing a 5.7% rise in selling prices. Lanxess would need a 5.6% increase and BASF would require about a 5.2% lift to cover the incremental oil-related expense, according to J.P. Morgan.
The brokerage drew a separate picture for energy exposure, highlighting Yara as carrying the largest unhedged burden from rising EU gas prices. J.P. Morgan estimated that higher gas costs would amount to the equivalent of 20% and 22% of Yara’s 2026 and 2027 EBITDA, respectively, and that an 11% increase in European fertiliser prices in both years would be needed for the company to break even on those energy costs. The note assumes Yara has no hedging in place, leaving it fully exposed.
Post-hedging, Lanxess and Wacker were next in line for notable energy-related EBITDA pressures, with headwinds estimated at 12% to 15% and 7% to 12% of EBITDA respectively.
Market disruptions in the Middle East are already affecting specific product markets. QatarEnergy, which accounts for roughly 10% of global seaborne urea flows, has halted chemical production, and Iran’s ammonia and urea output is reported to be offline. Those outages coincided with a roughly 26% jump in Egyptian spot urea prices in a recent sale. J.P. Morgan noted that depending on how long the disruptions persist, net sellers such as Yara could see some benefits.
Upstream petrochemical supply has also shifted. South Korean steam crackers have reduced run rates by about 5% to 10% as naphtha costs climbed, and Asian ethylene prices have appreciated roughly 16%.
J.P. Morgan said that a broader and sustained production curtailment might open a narrow window for producers to regain pricing power, potentially helping a name like BASF offset raw material inflation. The brokerage flagged that outcome as low probability.
Not all firms face the same direct energy pressure. Novonesis and Air Liquide were identified as having among the lowest direct energy headwinds due to stronger pricing power, although J.P. Morgan cautioned both could still face indirect demand weakness stemming from higher costs across the value chain.
On the supply side for European gas, storage levels were described as near their lowest seasonal point since 2019, while pipeline suppliers Norway, Russia, and Algeria have limited scope to raise flows in the near term, data provider Argus reported, reinforcing the risk of constrained gas availability into Europe.
Looking ahead, the combination of steeply higher oil and gas prices and significant industry oversupply makes passing through cost increases a difficult proposition for many chemical producers. J.P. Morgan’s analysis suggests that absent stronger pricing power or an improbable, sustained production pullback, margins and consensus profitability estimates across the sector remain at risk.