German Chemical Business Lags in H1 2015

26.07.2016 -

Business was on a downward curve for German chemical and pharmaceutical producers in the first half of 2016, the industry association Verband der Chemischen Industrie (VCI) said at a press briefing. Production was flat at the prior year level, and sales declined 3.5% to €90.4 billion, the latter figure partly reflecting a 2% drop in producer selling prices. Both foreign and domestic sales shrank, with domestic revenues down 4% to €34 billion and foreign revenues down 3.5% to €6.4 billion.

VCI cited sluggish demand and import pressure as principal reasons for the poorer results. It said demand for base chemicals improved only slightly from the decline seen last year. At the same time, output of industrial gases, fertilizers and other inorganic based materials shrank by 2.5%. The last-seen upward trend for fine and specialty chemicals did not hold up, and production fell back 0.5%. Pharmaceutical output also dropped back 0.5%, consumer chemicals by 1%. Polymers stood out with a rise of 2.5%, but against a poor 2015.

For full year 2016, the association is predicting a 0.5% decrease in production and a further 2% decline in selling prices. Sales revenue is forecast to fall by 1.5% to €186 billion. Explaining the more downbeat outlook, VCI President Marijn Dekkers, former CEO of Bayer who is filling out his term at the producers’ grouping despite moving from the Leverkusen group to Unilever earlier this year, said “positive impulses are lacking for chemistry – both economically and politically. At the same time, the negative factors are increasing.”

Dekkers identified the negative factors as weaker growth in emerging markets, low dynamics in global trade overall and the end of the worldwide investment boom, along with special factors such as lower oil prices and a soft European currency. The UK’s pending exit from the EU, along with strong fluctuation of raw material prices and exchange rates, were “other adverse framework conditions for solid growth,” he said, and the so-called Brexit vote a negative signal as it comes just as European economies were beginning to recover.”

German chemical producers, who rank third among global exporters, are seeing increasing signs that the country’s competitiveness is crumbling. Dekkers said “structural changes” in the US, in China and Saudi Arabia have allowed producers there to enjoy low energy and raw material costs and build “massive production capacities.”

If pharmaceuticals are excluded from the industry-wide figures, VCI said the German chemical industry’s foreign trade balance is now shrinking, and in the petrochemicals segment it already has a foreign trade deficit. In polymers, too, the balance appears to be worsening. Since 2011, polymer production in Germany has dropped by 500,000 t/y and volume output of petrochemicals by 6% (4 million t/y), figures show.

The producers blame the lack of investment in new domestic production facilities on high energy costs, lack of planning security in the country’s energy policy, neglected infrastructure and a critical attitude toward of industry. Since 2011, the association said, the gap between domestic and foreign investment by German chemical companies has been widening. The most recent budgets of VCI member companies abroad amounted to well over €8.6 billion, exceeding domestic capital spending by around €1.5 billion.