Commerzbank-Report European Chemical Industry Under Pressure: Is the Match up for Europe's Chemical Industry?

Author Anke Geipel-Kern

High energy costs and shifting the basic chemicals sector to Asia and to the near east  —  The heads of European chemical companies need to stay warm in the future. It so happens as industry experts of Commerzbank are predicting in their new industry report; the chemicals industry will produce basic chemicals in the medium-term, only for its own use.

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The mega fusion of Dow and Dupont, the takeover of Syngenta by a Chinese group, poor annual figures BASF—the mood in Europe’s chemical industry was much better. And the industry experts of Commerzbank are now rubbing salt in the wounds of European corporate executives.

The recently released industry report Chemie 2016 discloses certain structural weaknesses of the Europe’s leading sector. Reach, high energy prices and a sales market, which is barely growing – BASF, Bayer and Co. must have had enough of it right now. The question is how?

“The growth centres of the chemicals industry are moving from the industrialised countries to regions with strong economic development (newly industrialised countries, particularly China) or low raw material and energy costs (the Gulf region, USA),” explains Jürgen Reinisch, industry analyst of Commerzbank in the Industries Research division, in the publication of the latest industry report on Chemistry.

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Consolidation in Europe

Consolidations of European (poly-)ethylene-production plants and a decline in naphtha production are reactions to the same. The slump in the oil price has just given some breathing space to companies and has made petro-chemical plants competitive again for the short term. But the production landscape will change sooner or later. Even if the forecast for 2016 assumes a slight increase in production by 0.5 percent. Reinisch says that the capacity structure of the basic chemicals in China and the near East is to the detriment of Europe.

He believes that basic chemicals are manufactured in the medium term only for meeting their own requirement in Europe. At the moment, the lion’s share of two-thirds of the sales volume goes to basic chemicals. But now American shale gas and Chinese coal are exerting a strong competitive pressure. It is also evident in the investments planned in the USA and China. All seven crackers are supposed to develop in North America and five in China.