EU Chemical Output Slightly Higher in 2017?

  • (c) Covestro(c) Covestro

After seeing no growth in 2016, the European chemical industry council CEFIC is forecasting a “small uptick” in EU chemical production of around 0.5% in 2017, despite a “volatile and challenging environment.” While overall growth of chemical producers’ biggest clients – such as automotive and construction – is seen as unlikely to accelerate, the industry association said that within production sectors demand is likely to be more balanced.

In its monthly summary for November and December 2016, CEFIC said output was down 0.1%, and with producer prices seeing a steep drop of 4.6%, sales revenue across the EU declined 4.1%. Exports rose 1.8% to €96.9 billion, while imports into the EU increased by 2.9% to a value of €66.8 billion. The balance of trade with other regions improved by 0.8% over the two-month period.

Capacity utilization rates climbed upward by 0.6% in the last two months of 2016, and while the producers’ grouping provided no figures for the period, it said capacity use in the third quarter, at 81.9%, was still 3.2 percentage points below the post-crisis peak of Q1 2011.  November and December saw employment across the industry rise by 0.5% but levels remained below the pre-crisis period. Consumption slackened by 4.6%.

Looking at production figures for 2016 as a whole, the industry association said there were “significant differences” among industry segments. Output of base petrochemicals expanded slightly on back of falling crude oil prices, but energy intensive European production is still suffering from competitive disadvantages compared to other regions. Producers also face higher feedstock prices for their main feedstock, compared with US competitors. Ethylene cash costs in the EU, for example, are twice as high as those in the US.

Growth in polymer production this year has been supported by solid automotive demand, but also from the packaging and electronics industries, CEFIC said, but while these segments developed positively, production in basic inorganics declined significantly, due in part to slack demand for fertilizers.

Weaker agricultural demand also impacted crop protection products in the fine and specialty chemicals segment. Strong competitive pressure in export markets, coupled with weak global growth put a damper on growth in consumer chemicals such as cosmetics and personal care products.

In 2017, CEFIC sees demand for agricultural products as stabilizing, so that output of fertilizer and chemical crop protection agents should slowly recover from low base levels. Thanks to continued low oil prices, the petrochemicals segment will not see its competitiveness gap narrow further. Although the automotive industry’s demand for polymers is expected to soften, robust demand from packaging and construction should lead polymers to grow more strongly than other production segments. Specialty and consumer chemicals growth should be supported by moderate demand growth from manufacturing and private consumption, the association said.

As was the case for 2016, the EU chemical business climate is showing no clear dynamic, CEFIC warned. While the world economic climate on the whole appears to be “swinging back on track for a moderate recovery,” development still remains below its long-term average. The association sees the election of Donald Trump to be US president as a “major risk for the world economy.”

Analyzing how world developments are impacting the EU chemical industry, sector, CEFIC said globalization as well as competitiveness challenges associated with the cost of doing business in the Europe continue to dog the sector. While demand for chemicals globally is increasing year on year, the EU industry’s share continues to decline, and it now stands third behind Asia and the US in terms of worldwide sales. But even against that gloomy backdrop, “the industry is holding its own to keep manufacturing in Europe,” the association concluded.

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