Brenntag’s 2025 Expense Reduction Strategy to Be Challenged by 2026 Middle East Supply Chain Disruptions

Brenntag's 2025 Strategy: Navigating Industry Turbulence

Brenntag's performance in 2025 serves as a model for enduring significant challenges within the chemical industry. Despite enduring one of the longest downturns in recent history, the company maintained impressive stability. Although sales declined to €15.2 billion, Brenntag's focus was on protecting its margins. The company succeeded in sustaining its operating gross profit margin at 25.3%, marking a slight improvement over the previous year. This ability to maintain pricing in a weak market led to robust cash flow, with free cash flow totaling €941 million.

To counteract declining sales, Brenntag aggressively reduced costs. Management achieved €165 million in gross savings in 2025 by streamlining operations and simplifying the organizational structure. This included eliminating two layers of divisions, reducing approval steps from 26 to just three, and increasing field sales efforts. The company aims to build on these structural changes, targeting an additional €200–250 million in savings by 2027, with a goal of reaching €300 million in annual savings.

This disciplined approach has prepared Brenntag for current challenges. The outlook for 2026 projects operating EBITDA between €1.15–1.35 billion, which is similar to the 2025 figure of €1.29 billion. CEO Jens Birgersson described the market as "flat at best" and highly uncertain. The cautious forecast, which deliberately omits potential effects from the ongoing Middle East conflict, reflects the lessons learned in 2025. Brenntag has developed strategies to manage through weak markets, but now faces a new, external threat that could challenge its cost controls.

Emerging Threat: Middle East Conflict and Its Impact

While Brenntag successfully weathered the 2025 downturn, a new geopolitical crisis has emerged, directly affecting its cost structure and supply chain. The conflict in the Middle East, which started in late February, is already causing price increases across the chemical sector. CEO Jens Birgersson noted the logistical challenges: "Ships are stuck and there are delays", signaling higher transportation costs and direct disruptions to the movement of goods.

The scale of this disruption far exceeds recent events. The conflict's intensity and reach surpass the brief 12-Day War of 2025, and it directly impacts the region's industrial core. The suspension of polymer and urea production by QatarEnergy, a leading global producer, introduces new supply risks. QatarEnergy is responsible for 14% of global urea and 20% of LNG, both crucial for chemical manufacturing. The consequences are immediate, with Brent crude prices rising over 15% as the Strait of Hormuz—a passage for nearly 20% of the world's crude oil—faces potential closure.

Historically, such conflicts have been brief, with some analyses predicting this war will last less than two months. However, even short-term disruptions can severely impact chemical distributors. Brenntag's cost-saving measures were designed for a prolonged market downturn, not for sudden interruptions in global trade and production. While passing increased costs to customers is standard practice, the greater risk lies in a drop in demand if the crisis continues. This situation presents a unique challenge, threatening the stability of the supply chain itself.

The central question is whether Brenntag's disciplined cost management can withstand this new external price shock. The company's strategy is to transfer higher costs to customers, as CEO Jens Birgersson has stated, noting that suppliers are demanding higher prices. His main concern, however, is the potential impact on demand if these conditions persist. The savings achieved in 2025 were intended to offset a weak market, not a crisis that could simultaneously increase input costs and reduce customer spending.

By excluding Middle East impacts from its 2026 guidance, Brenntag highlights the risk. The company forecasts operating EBITDA of €1.15–1.35 billion, roughly in line with the previous year's €1.29 billion. This projection assumes the crisis remains contained, but if the conflict lasts longer than expected, the guidance could quickly become outdated.

Brenntag's ability to maintain its renowned margin resilience is now being tested. The shutdown of production by QatarEnergy and resulting logistical chaos threaten to increase input costs for petrochemicals. The company's capacity to uphold its 25.3% operating gross profit margin from 2025 is uncertain. Planned savings of €200–250 million by 2027, in addition to the €165 million already achieved, were intended for structural efficiency, not to absorb sudden spikes in logistics and feedstock expenses. The challenge has shifted from managing a weak market to handling a volatile supply chain.

Key Drivers and Risks: Looking Ahead to 2027

The upcoming year will be shaped by two main factors: the duration of the geopolitical crisis and Brenntag's ability to execute its cost-reduction strategy. The company's success depends on managing these elements without breaching its conservative 2026 guidance.

The primary external risk is the ongoing Middle East conflict. Historical patterns suggest it may be short-lived, with some forecasts indicating it will not last beyond two months. However, Brenntag's guidance specifically excludes any effects from these events. If the crisis extends beyond expectations, Brenntag may face increased costs or reduced volumes, directly challenging its margin resilience. The persistence of supply chain disruptions and sustained input cost pressures will be crucial metrics to monitor.

Internally, Brenntag's execution of its savings plan is vital. The targeted €200–250 million in savings by 2027 provides a necessary cushion. Any failure to achieve these savings amid rising costs would threaten the 2026 EBITDA target of €1.15–1.35 billion. The €165 million saved in 2025 resulted from significant organizational changes; maintaining this progress during a new crisis will test management's resolve.

A pivotal moment is expected in the second half of 2026. CEO Jens Birgersson has announced plans to unveil a new strategy during this period. This update could mark a formal reassessment of market conditions and Brenntag's position, potentially revising the 2026 guidance if the conflict's impact becomes clearer, or outlining a new growth trajectory. This event will indicate whether Brenntag's 2025 strategies are adequate for the challenges of 2026, or if a more substantial shift is required.