German Chemicals Bruised but not Battered by Corona

15.09.2020 - Despite the global coronavirus pandemic that threatened to wipe out gains made since the deep economic recession of a decade ago, Germany’s chemicals and pharmaceutical producers held up relatively well in the first half year, Christian Kullmann, president of the industry association Verband der Chemischen Industrie (VCI), told journalists last week.

Speaking at a press conference to discuss business results for the six-month period, Kullmann – who is CEO of Evonik – said, however, that even if the industry came through the lockdown and the global crisis bruised but not battered, producers nevertheless faced a slump of “historic proportions” as order volume declined sharply.

During March and April, assembly lines and factories at customers in the automotive, metalworking and E&E sector stood still over a period of several weeks, and in some cases supply chains were disrupted. On the sunnier side of demand development were producers of pharmaceuticals and disinfectants.

Over the two quarters from January to June, VCI figures show production of chemicals and pharmaceuticals in Germany down 2.5%. For chemicals, excluding pharmaceuticals, the setback was 3.6%. In the second quarter alone, overall output sank by 5.8%, and capacity utilization rates averaged only 77%. Sales across the industry sank by 6% in the first half, with the second quarter drop of 11.5% most dramatic.

Looking at individual production segments, the industry grouping said pharmaceuticals were comparatively stable, with a dip of only 0.3%. With hygiene emphasized to avoid contagion, output of soaps, detergents and cleansers also saw little change, with only a slight minus of 0.7%.

German petrochemical production tapered off 2.5% year-on-year in H1, and that of inorganic base chemicals by 6%, while output of specialty chemicals declined 3.9%, and polymer production sank by 8%, due to shrinking demand from plastics converters supplying the automotive industry.

Near the end of the third quarter, the economic horizon appears brighter, and Kullmann suggested that the downturn may have bottomed out. Still, only 49% of VCI member companies responding to a recent survey thought sales would return to pre-pandemic levels before the end of 2021. Another third thought it would take a year longer, with around 13% doubting that business would ever recover.

At present, around 10% of the sector’s employees are still working shorter hours, the VCI president said, down from 15% on average in the second quarter, and chemical companies up to now have managed to get by without crisis-related layoffs.

For the second half of 2020, VCI forecasts that demand will stabilize. Despite this, a statistical adjustment may depress results somewhat, Kullmann said without elaborating. Chemical and pharmaceutical production could end the year 3% below the 2019 level, with overall sales 3% lower, he predicted. For chemicals alone, output is likely to decline by 4%, and price levels should be 2% lower than last year.

Unusually when assessing conditions for business in its home market, the chemicals lobby praised the German federal government – at least backhandedly – for its energetic invention in the crisis. Emergency aid “to prevent the worst” was necessary and welcome, the VCI president said. However, after a decade “without any impetus for the industrial sector,” he said business needs a new beginning.

Kullmann called on the next political administration in Berlin – elections are scheduled for this autumn – to slash corporate taxes to 25%, lower the cost of renewable energy, cut bureaucracy to aid medium-sized businesses, streamline approval of capital investment and increase funding for climate control and a circular economy.

“Without sustainable growth, the VCI president said, “there will be no funds available to invest in R&D and technological development or exploitation of natural resources.”


Author: Dede Williams, Freelance Journalist