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AlwaysFree: Verband der Chemischen Industrie (VCI) - Brighter Mood, Persistent Worries Business Situation Of The German Chemical-Pharmaceutical Industry

Author: SSESSMENTS

  • The downturn in the chemical-pharmaceutical industry continued in the 4th quarter of 2022 which saw a further slump in production and under-utilisation of capacities.

According to the company’s website press release on March 9, 2023, in the last three months of the past year, falling demand from industrial customers and declining producer prices also brought a sales decrease in Germany and abroad.

However, the outlook for the future has brightened somewhat in Germany’s third largest industry. Meanwhile, the major drop in energy and raw material prices in recent months has stabilised the situation where the bottom seems to have been reached. But the German chemical industry association Verband der Chemischen Industrie (VCI) does not expect a strong recovery. High energy costs in the international comparison, the lack of orders and location problems speak against this. Thus, the situation in the chemical and pharmaceutical industry remains difficult.

VCI director-general Wolfgang Große-Entrup comments on the current situation: “The energy crisis reveals that Germany has an enormous location problem. Whether this is about energy, infrastructure, skilled labour, digitalisation or an efficient, well-performing public administration: resorting to the metaphor of soccer, we believe to be playing at the top of the table while we are fighting against relegation. Only a restart of the industrial policy can keep us in the premier league in the race for the markets of the future. The following applies in this effort: less is more. Less regulation for more transformation. Our response to the US IRA should be an RRA – a regulation reduction act.”

Economic figures at a glance

  • Production decreased by 5 percent against the previous quarter. In a year-on-year comparison, this corresponds to a decline by 14 percent. Capacity utilisation in the industry dropped once more and was most recently at 76.5 percent.
  • Producer prices fell again for the first time since Q2 2020, namely, by 0.3 percent compared with the previous quarter. This means that chemical and pharmaceutical products were still almost 18 percent more costly than one year earlier.
  • The falling demand, severe production cutbacks and lower producer prices also led to a drop in sales from October to December 2022. On a seasonally adjusted basis, total sales in the chemical-pharmaceutical industry declined by 3.7 percent to 59.2 billion euros.
  • The number of the industry’s staff went up in 2022 by 0.5 percent over last year. At present, around 475,560 persons are employed in the chemical-pharmaceutical industry.
  • Looking at the overall year 2022, production decreased by 6.6 percent. Excluding the pharmaceutical business, the decline is even double-digit at 11.9 percent. The rise in sales by 16.6 percent is mainly attributable to price increases by just under 22 percent. In turn, higher prices caused sales volumes to fall by more than 5 percent. With energy and raw material costs rising rapidly at the same time, the profits of companies shrank ultimately.

The difficult position of the industry is not only due to massive price increases and supply shortages for electricity and gas. The existing cost problem is compounded by a shortfall in demand: Many chemical companies are running out of orders, as the economy is now in a global downturn. This not only adversely affects exports. To a growing extent, companies are also feeling the economic weakness in their domestic business. These setbacks are not limited to energy-intensive industries. Increasingly, other sectors, too, are struggling with the consequences of inflation and rising interest rates.

The fact that the feared massive slump in the German economy did not come about is largely because an acute gas shortage and a blackout were prevented. Energy-intensive industries made a major contribution to stabilisation by cutting back their production and thus saving a lot of gas and energy. In addition, the winter was unusually warm. Meanwhile, new LNG terminals have become operational, so that Germany can further diversify the country’s gas supplies.

2023 remains difficult

The significant drop in energy and raw material prices in recent months should stabilise the situation in the first quarter of 2023. This is also reflected in a more confident business climate. All the same, Große Entrup warns, "Even if the mood brightens, the worries persist and – unlike in the pandemic or the global economic crisis – there will be no powerful recovery this time."

These four factors speak against it:

  • Inflation will last for several years.
  • The weakness of the global economy will continue.
  • The energy crisis in Germany and Europe remains unresolved.
  • Germany has a massive location problem.

A precise forecast is still difficult due to the volatile underlying conditions. For 2023 overall, the VCI expects a drop in production by around 5 percent. When excluding the pharmaceutical business, this year’s production should be 8 percent lower than the output back in 2022. With falling prices, the industry’s sales are likely to decline by around 7 percent in a year-on-year comparison.

Restructuring in chemical business

A VCI member survey highlights the impacts of current developments on corporate strategies. Many companies are planning to switch their energy supply to renewables, inter alia, by investing in own generation (for example, solar plants or wind farms) and energy-efficient production processes. The aim is to further speed up the sustainable transformation. Nearly 70 percent of companies stated their intention to reduce their dependence on inputs from countries with high-risk potential and to diversify their supply chains globally. While almost 50 percent of companies are reviewing their globalisation strategies, the final outcome of the survey is that businesses want to benefit from worldwide growth through both exports and on-site production.

It will be decisive for the German chemical industry how cost structures and energy prices will settle in the medium term. Only then will it be possible to see which plants can still be operated profitably in this country. There will be structural change, because not all production plants that were shut down during the energy crisis will become operational again.

Setting the course of the industrial policy for the future

Fast action is needed, because global competition for the markets of the future has long since begun. Wolfgang Große Entrup explains: “Our industry can cope with structural change, maintain value creation in Germany and safeguard the supply of innovative and sustainable materials for industry. However, this takes an instant industrial policy programme. The course is being set today to once more strengthen Germany and Europe as industry locations and to drive forward climate protection here and worldwide.”

Therefore, the VCI is advocating the following points:

  • All energy sources must remain part of the grid for a competitive power supply. At the same time, the expansion of renewable energies, grid infrastructure and storage systems must be promoted massively. But that alone will not be enough. An industrial electricity price is required to enable reliable planning for industry for a successful transformation.
  • A strong and competitive Europe needs a restart in industrial policy. Instead of creating uncertainties in planning, investment and on the legal side with bans, tighter limit values and regulation, there should be better governance and prioritisation. The focus must be on sustainable growth.
  • For free trade instead of protectionism: From the carbon border adjust-ment mechanism (CBAM) to the supply chain act and eco-design – many pieces of regulation are an affront to our trading partners. This makes imports more expensive, diverts trade flows away from Europe and cuts off our raw material supplies. In our view, it would be better to agree on common trade rules with the trading partners under free trade agreements.

The VCI represents the interests of around 1,900 companies from the chemical-pharmaceutical industry and related sectors vis-à-vis politicians, public authorities, other industries, science and media. In 2021, the VCI member companies realized sales of ca. 220 billion euros and employed over 530,000 staff.

Contact: 

VCI Press Department, phone: +49 69 2556-1496, e-mail: presse@vci.de 

CONTACT PERSON

Josefin Altrichter

Content Management, Presse

Phone:+49 (69) 2556-1489

E-mail:altrichter@vci.de 

Tags: All Chemicals,AlwaysFree,Central and East Europe,English,Europe,Germany

Published on March 10, 2023 10:53 AM (GMT+8)
Last Updated on March 10, 2023 10:53 AM (GMT+8)