Subdued Outlook for German Chemicals in 2020

Auto recession and coronavirus

13.03.2020 -

Despite a better than expected fourth quarter 2019, the German chemical industry association Verband der Chemischen Industrie (VCI) has revised its outlook for 2020 slightly downward.

The association said production and sales improved slightly in Q4 compared with the earlier months. However, there was no trend reversal in the chemicals business, and it now expects annual output to decline by 1.5%.

Quarter-on-quarter, industry-wide sales rose 0.8% to €45.4 billion from October to December, with domestic sales up 0.7% and sales in foreign markets up 0.9%. Year-on-year, however, VCI said sales were down 2.7% against 2018.

Production rose 1.6% quarter-on-quarter but full year output fell 2% against 2018. Prices eroded slightly in both periods.

Full-year sales volumes in both the chemicals and pharmaceutical sectors are expected to stagnate at best in 2020, but sales revenue intake should remain unchanged at €196 billion, according to VCI.

Commenting on the outlook, VCI general manager Wolfgang Große Entrup said  German customer industries – in particular automotive – are in recession or headed toward, it, thus dampening demand for chemicals. The emergence of the coronavirus epidemic is also doing its part to depress demand, with export markets, especially in Asia, likely to suffer.

Große Entrup indicated that China, from whence the novel COVID-19 virus strain has emerged, and where the German chemical industry is also heavily engaged, could be a critical factor in the expected demand deterioration.

German chemical producers reporting annual results in February and March also predicted a decline in earnings due to the virus outbreak. Lanxess projected a negative effect of €50-100 million, Covestro put the figure at €60 million, and Evonik’s estimate was €30 million. Analysts quoted by the German business newspaper Handelsblatt said BASF could see net earnings shrink by €400 million.

VCI has called on the German federal government to help the economic sector through the negative effects of the virus epidemic.