German Chemical Industry Mood Brightens

10.03.2023 - The mood of the German chemical industry brightened at the beginning of 2023 on the back of a sharp downslide in the last quarter of 2022, when production slumped by 14%, producers operated plants at around three-quarters of capacity, demand sank and sales declined both in domestic and foreign markets.

In its report on the ongoing first quarter, the industry association Verband der Chemischen Industrie (VCI) said business has improved on the back of lower energy and raw materials costs, and the downswing appears to have bottomed out.

But while the sector is expecting a robust recovery, it still faces strong headwinds, the association’s director-general Wolfgang Große Entrup, said. Along with slower demand, he said VCI’s member companies face deficits in international competition, due to still-high energy costs and other structural problems in the home market.

The energy crisis has exposed the sector’s internal weakness, Große Entrup stressed, using dramatic language from European football to describe the situation. “Whether it is energy, infrastructure, skilled labor, digitalization or efficient government, we believe we are leading, when in fact we are facing relegation. Only a complete reset can help.”

Of late, the industry has become increasingly vocal in expressing its concerns about two things in particular: regulation and competition. On the first count, “less is more,” the VCI manager said.

As regards competition, an even bigger thorn in the industry’s side are the incentives the US now offers companies making “green” investments in the domestic economy under the new Inflation Reduction Act (IRA). Here, investors can potentially pocket of up to 70% of their investment cost.  

Europe’s answer to that, in the association’s view, should be an RRA — a Regulation Reduction Act.

In the first third of March, there were signs that the two large international blocs could be headed for some type of agreement on leveling the competitive playing field, but the German industry has other worries.

Inflation, VCI forecasts, will remain a problem for years to come, as will the weakness of the world economy. In particular, the energy crisis is far from being resolved.

Despite the lack of visibility, the association estimates that the German sector’s production will recede by around 5%. Removing the pharmaceutical industry from the equation, output could be 8% lower than in 2022, and with selling prices to point downward, the industry‘s sales could sink by 7%.

Author: Dede Williams, Freelance Journalist