Market Impact German Chemical Industry Association Outlines the Effects of the Ukraine War

The German Chemical Industry Association (VCI) has stated that the industry's expectations from the beginning of the year for the business outlook in 2022 have been overturned due to Russia’s invasion of Ukraine. It further mentions that 70 % of companies are facing major problems in their business with the explosion of energy prices and also warned that an import ban on Russian natural gas would lead to massive consequences for the chemical and pharmaceutical industry.

Related Vendors

EDL Anlagenbau Gesellschaft mbH

Pörner Ingenieurgesellschaft mbH

TRM Filter d.o.o.

Verband der Mineralfarbenindustrie e.V.

Frankfurt/Germany – The hopes of the chemical and pharmaceutical industry for a positive economic trend this year have come to an abrupt end with Russia's invasion of Ukraine. The industry's expectations from the beginning of the year for the business outlook in 2022 have been overturned within a few weeks.

According to the German Chemical Industry Association (VCI), 54 percent of member companies expect a decline in production and sales for the current year, according to a recent survey by the association. As a result, the VCI has withdrawn its previous estimate for 2022 as a whole. The chemical association is currently unable to provide an update: "Any forecast would be highly speculative," VCI CEO Wolfgang Große Entrup stressed to the press.

The economic and political situation has changed dramatically for the energy- and raw material-intensive chemical industry as a result of the war in Ukraine. Prices for oil and natural gas have exploded. Companies' financial leeway is dwindling more and more. 70 percent of companies report serious problems for their business due to high energy prices. 85 percent state that they are either unable to pass on rising production and procurement costs at all or only in part.

Consequences of an embargo

The VCI chief executive warned that the consequences of an import ban on Russian natural gas for the chemical and pharmaceutical industry would be massive, but not limited to them. "Deep cuts in the industry's production levels would not only be expected in large energy-intensive companies, but would also be unavoidable in medium-sized businesses and probably across all divisions. Through the value chains, the effect would propagate to the entire industry in Germany," Große Entrup emphasized.

Almost all sectors, according to the VCI, such as agriculture, food, automotive, cosmetics and hygiene, construction, packaging, pharmaceuticals or electronics, would then be affected by a disruption of their supply chains. "A severe and multi-year recession with massive job losses must be expected. And unlike the financial and corona crises, Germany would not recover relatively quickly in the event of an industrial crisis. Then the economic performance of this country is at stake."

The chemical and pharmaceutical industry uses around 2.8 million metric tons of natural gas as a raw material (27 percent of total consumption) and 99.3 terawatt hours of natural gas (73 percent) to generate steam and electricity each year.

Reprioritize political projects in Brussels and Berlin

Under the changed energy and geopolitical conditions, the VCI believes it is urgent for Berlin and Brussels to conduct an urgent analysis of their current legislative projects and prioritize them in three categories. According to Große Entrup, "Simply 'carrying on as planned' is irresponsible and extremely dangerous in terms of industrial policy."

In the view of the VCI, absolute priority should be given to all timely solutions that support the security of supply and affordability of energy and thus stabilize the economy and jobs - such as the prompt abolition of the EEG levy, a reduction in the energy tax to the EU minimum, or a temporary suspension of the phase-out of coal-fired power generation. In parallel, the expansion of renewable energies and the necessary infrastructure must be driven forward with all our might - even in the face of resistance.

For the VCI, the "postponement" category includes, for example, the EU chemicals strategy project with the extensive regulatory package of the amendment to the REACH Regulation or the national and European Supply Chain Act. From the VCI's point of view, the Brussels project CO2 border adjustment (CBAM) could be completely postponed: "The effectiveness of this project for climate protection is highly controversial and a WTO-compliant design is still in the stars. It threatens to become a bureaucratic monster that creates new trade barriers. Such a political monster is absolutely out of place for the period of economic revival after the crisis," emphasized Große Entrup. More promising for more global climate protection, on the other hand, is the German Government's plan to win international partners for a "club of the willing”.

In order to better position the country in terms of the resilience of raw material and energy supply, for the process of transformation and the international competitiveness of the industrial location, the acceleration of planning and approval procedures is of paramount importance, said the VCI.

However, the German Government's goal of halving operating times in government agencies should not apply exclusively to the development of the energy transition infrastructure and more solar and wind power capacity, it said. "This target must also be applied as a general requirement for industrial plants in order to provide a tailwind for investments. Because wind power alone does not make climate protection," said Große Entrup.

Facts and figures

Foreign trade with Russia and Ukraine

The economic links between the German chemical and pharmaceutical industries and the warring parties are manageable, but not insignificant: Russia and Ukraine together account for just under 3 percent of German chemical and pharmaceutical exports. Most recently, this amounted to a good 6.8 billion euros.

The industry is also active locally with subsidiaries: The region accounts for around 2 percent of its direct investments abroad. The VCI estimates that the 70 or so companies employed a total of about 20,000 people before the war began. "The Russian invasion is a brutal attack on Ukraine's right to self-determination and in no way justifiable. State propaganda, lies and fake news from the Kremlin do not change this in the slightest," explained the VCI CEO.

2021 annual financial statements of the industry

• Despite the pandemic and other adversities, the chemical-pharmaceutical industry achieved a successful and remarkable full-year 2021:

• Production increased by 5.3 percent compared to the previous year. Excluding pharmaceuticals, volume growth amounted to 5.0 percent. Almost all divisions benefited from the development, with the exception of the personal care and detergents segment (-1.7 percent). The polymers product group, which is required, for example, in the automotive and packaging industries or for the construction industry and sporting goods, achieved a particular plus with a 16.3 percent increase in volumes.

• Sales rose by 17.9 percent over the course of the year to 225 billion euros due to the continuous increase in producer prices (+9.3 percent). International business developed dynamically (+17 percent) and, at 140 billion euros, contributed almost two thirds (62 percent) of the overall result.

• The number of employees in companies in the chemical and pharmaceutical industry rose slightly (+0.5 percent) to 466,500.

(ID:48108084)