Slump in sales and trade crises: The chemical industry in Europe in general and Germany in particular had a bumpy start into 2019. The downward trend of 2018 intensified during the first half of the year, as important customer industries are weakening and the special effects of the pharmaceutical industry are starting to slow. Recovery is unlikely in the face of international uncertainty. Is that the low point or the beginning of a longer downtrend?
Frankfurt/Germany - Chemicals giant BASF cuts corners, Covestro faces declining sales and Bayer is struggling with the Monsanto acquisition: So far, 2019 is not going well for the German chemical industry. The country's third-largest industrial sector is suffering from a weakness of key customer industries and international uncertainties. Added to this is the unexpected dynamism that issues such as decarbonisation and the circular economy have received - and the fact that the chemical community does not appear to be capable of solving these problems. Also the pharmaceutical sector, which grew strongly in 2018 can no longer keep the pace: despite a largely stable demand, sales and production decline year-on-year, according to Hans Van Bylen, president of the German Chemical Industry Association VCI and CEO of Henkel.
Compared with the previous year, production fell by 6.5%. This value is not quite as dramatic, if you look at the pharmaceutical production, but also the core chemical business is experiencing a decline in production by 2.5%. As a result, industry revenue fell 4% from the first half of 2018 to a total of 95.9 billion euros, of which 35.5 billion domestic. The persistent weakness of the automotive industry in particular is a course for concersn among the large chemical companies: over the year, the VCI now expects a further decline in sales in this area by 1.5%. Declining demand in Germany and Italy, two of the most important markets in the EU, is particularly pronounced.
Dclining demands affected industrial raw materials such as fine and specialty chemicals (production decline by 4%) or Polymers (-7%) as well as consumer products, such as detergents and personal care products, cosmetics and soaps (-4.5%). The only exception were inorganic raw materials, which increased by 15%. Petrochemical production was able to overcome the low and stabilize at the level of the previous year. On average, the production capacity of the country's chemical plants stands at 84%, a value in the lower average range.
While the export-oriented German industry has so far been able to reliably hope for growth in key customer markets in Europe and the world, the outlook remains gloomy internationally: trade conflicts, the unresolved Brexit and the tensions in parts of the world make an end to the uncertainties seem unlikely. "The risks to economic development remain high. Rising tariffs between the USA and China are threatening and the danger of military conflicts in the Middle East is increasing. Should that happen, this would further slow down global trade and have a significant impact on German industry, "says VCI President Van Bylen, citing the conditions for the industry.
Slump, not Crisis
Therefore, the VCI corrects its statements made at the end of 2018 again - downwards: The industry association expects a decline in sales of 3% and a decline in production of 4% for the current year. As a result of these uncertainties, commodity prices are rising: crude oil will rise by about 16% in the first half of 2019 to about $ 66 per barrel. Naphtha - the most important precursor of petrochemicals and plastics - also rose in price in the first six months of 2019 to almost 470 euros per ton (an increase of 12%). This leads to rising producer prices (+ 1.5%), which can compensate for a small part of the declining sales. So far, the labor market situation remains stable, despite initial announcements of job cuts. In mid-2019, the chemical industry in Germany employs 464,800 people.
The chemical industry also has to worry about its role in the sustainability debate: One in five Germans, for example, believes that that the chemical industry is the least worried about its environmental impact, a recent Accenture survey shows. A whopping 83% of respondents believe that chemical companies' communication about environmental pollution is not reliable enough.
Problem or Solution?
Accordingly, Van Bylen emphasizes the sector's role in the fight against climate change: "Our industry makes a significant contribution to the success of the energy transition and more climate protection with innovative products and processes," explains the VCI president. And opposes an extension of EU emissions trading or the introduction of a carbon tax.
"A national solo effort makes no sense. Not for the climate, nor for economic performance, employment and prosperity, "said Van Bylen in Frankfurt. Instead, the VCI advocates a solution that includes the world's major economies: "If we could agree on a common carbon price at the G20 level, that would have a significant impact on climate change while preserving our international competitiveness."