German Chemicals Stable, Output Flat in 2016
German chemical and pharmaceutical production will increase by around 0.5% in 2017 and, with selling prices slightly higher, sales revenue will rise by about 1%, the German industry association Verband der Chemischen Industrie (VCI) forecast in a talk with journalists. This means that annual business development next year is likely to be similar to this year, when output grew by the same margin and sales fell 3%. Spending on tangible assets in 2017 is expected to be flat at the level of 2016, which itself was unchanged against 2015, VCI said.
Speaking to journalists in Frankfurt, the association’s new president, Kurt Bock, CEO of BASF, called both the industry’s 2016 performance and the 2017 outlook “unsatisfactory,” as he said there is little dynamic in world markets, and emerging markets are performing below expectations. The only market that provided any kind of a boost to business this year was pharmaceuticals. With pharma figured out, chemicals output was flat at the 2015 mark. The 2% rise in R&D spending provided some encouragement, however.
For 2016, VCI expects the final tally to show sales across all product groups at a weak €183 billion, reflecting a 2% downturn in producers’ selling prices, Bock said. Within Germany, revenue will slip 4% to €71.5 billion, with foreign sales (including transactions with EU countries) 2.5% lower at €111.5 billion. Next year, only foreign sales are expected to contribute to growth. Employment levels will be flat in 2016.
The picture for this year, as usual, was somewhat differentiated, depending on the business segment. Demand for pharmaceuticals was robust, and output here rose 2%. Among base chemicals, lower crude oil prices lent a slight upwind to petrochemicals and plastics. While petrochemical output rose 0.5%, polymer production increased by 1.5%. Fine and specialty chemicals production sank by 0.5%, output of fertilizers and industrial gases by 1.5%. Manufacturers of consumer chemicals had to curb production by 2%.
Assessing the current state of affairs, Bock said that although revenue has pointed slightly higher in the final months of 2016, chemical producers do not see a change in direction ahead, especially as “uncertainties and economic risks on foreign markets around the globe have intensified.” Contributing factors, he said, are the persistent growth weakness of emerging markets and the anxiety about the stability of Europe, in particular the state of finances in Greece, the failed vote for reform in Italy and the generally controversial discussion over the CETA and TTIP trade agreements between the EU and Canada and the US respectively.
In the US, German chemical producers hope that US President-elect Donald Trump will make good on promises to improve infrastructure and reduce taxes, thus potentially stimulating the economy, but what direction he will take on other matters is as yet unclear to most. As regards emerging markets, the downturn in Brazil and Russia looks to have bottomed out, the VCI president said. In China, by contrast, the downturn may even gather momentum, which would negatively affect neighboring Asian countries.