Commerzbank-Report European Chemical Industry Under Pressure: Is the Match up for Europe's Chemical Industry?
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.
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.
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.
Special Chemicals are Gaining Importance
The study sees special chemical industry groups like Merck, Evonik, Clariant or Wacker as the major gainers. In Germany alone, industry experts of Commerzbank predict an increase in production of three percent for special chemical companies in 2016. The cause of this happy prospect is the consumers’ hunger in the newly industrialised countries, mainly China.
Notwithstanding the current dip in growth, the Middle Kingdom continues to remain a source of hope. “As a market, China is so large, that it always seems to be like a vacuum cleaner”, says the General Manager of the German Chemical Industry Association (VCI), Utz Tillmann. Mid-size suppliers of specialty chemicals may hope — particularly industry chemicals, which, says the experts from Commerzbank, can continue to expand their innovation.
In the process, they benefit from the high level of the domestic research institutions, industrial partners as well as a demanding and broad clientele: like from plastic processing or the automobile industry. “The growth of specialty chemicals is very satisfying at present because of the use of innovative technologies in products and processes — like Nano- and Biotechnology — and also the increasing development of environmentally-friendly chemicals and processes.
The German industry can score with high-value solutions for demanding clients within the country and all the overseas markets, adds Tillmann. It will then continue to grow in the future in Germany — in a group comprising Pharma, basic- and specialty chemicals. From the point of view of the VCI, the success factors comprise the central role in the industry network, high innovation strength, strong middle class, particularly efficient production systems and an alignment of the product strategy of the company to mega trends and sustainability.
The detriments in the shape of energy costs are homemade in no small part. So that Germany’s third largest industry can stay on the path to success, it needs better energy-policy framework conditions, says Tillmann: “The energy policy is an Achilles’ heel of our competitiveness. Frequently changing statutory specifications and a lot of state intervention in the energy market cause a high level of planning insecurity in the company — and thus, caution in investments.”