Frankfurt In view of drastically rising raw material costs, threatening supply problems with natural gas and ongoing logistics problems in rail transport, the German chemical industry increasingly sees itself at a competitive disadvantage compared to its international competitors.
Christian Kullmann, President of the industry association VCI, fears that a “perfect storm” could be brewing in the second half of the year and warns of any shifting tendencies. “The sharp increase in the price of primary products here in Germany coincides with the highest energy prices in the world, which is a creepy pair of siblings,” said Kullmann on Wednesday.
There is no sign of a noticeable relaxation in energy and raw material costs. On the contrary, natural gas will probably also be significantly more expensive in the longer term than in other regions of the world. “Against this background, Germany as a business location is increasingly facing a competition problem – not only in the energy-intensive sectors,” said Kullmann.
The VCI President, who is the head of the Essen-based chemical group Evonik in his main job, refers to forecasts according to which the industry must expect an energy price level in the medium term that is about twice as high as before the crisis. “It is clear that the discussion will then be on the agenda as to where investments should be made in the future.” A board of directors acting responsibly must deal with such considerations.
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The wish is actually to continue to grow where one is already represented. “That’s why it’s so important that we work with politicians to find solutions to make things better,” said the VCI President. Natural gas prices in Europe are currently around eight times higher than in the USA.
Growing pressure on earnings
The business figures for the chemical industry still look good, at least on the surface. According to data from the VCI, the German chemical industry increased its sales by around 22 percent to 130 billion euros in the first half of the year. However, the strong growth is exclusively due to price increases, with which companies have so far been able to pass on some of the rising raw material costs. Margins and earnings for the first half of the year should therefore still be comparatively decent for the large international corporations.
However, a far more difficult development is becoming apparent for the second half of the year under the influence of the further increase in raw material and energy costs as well as a weakening economy, which has meanwhile also been reflected, for example, in significant price losses at the listed companies in the sector.
The BASF share, for example, has lost around 23 percent in value since the end of March alone, and Covestro even around 30 percent. According to surveys by the VCI, the development is already difficult for many medium-sized companies in the sector. According to a member survey, more than a fifth of these companies have to cope with an increase in raw material costs of more than 50 percent.
At the same time, it is becoming increasingly difficult for companies to pass on higher costs to customers in the form of price surcharges. According to the VCI, around 70 percent of the companies reported a drop in profits, some of which have already made a loss.
BASF has warned several times that it will have to shut down the plant completely if the gas supply falls below 50 percent of the maximum gas requirement.
(Photo: AP)
The fact that the industry is heading for a difficult phase is also indicated by the production figures, some of which are already declining. Total production still grew by 0.5 percent in the first half of the year. However, the pharmaceutical business, which is traditionally included in the association figures and which expanded by 8.5 percent, essentially contributed to this. In the actual chemical industry (excluding pharmaceuticals), production volumes were three percent below the previous year’s level. In the case of fine and specialty chemicals in particular, volumes have already fallen significantly by around nine percent.
production will decrease
For the year as a whole, the association now expects production to fall by a total of 1.5 percent. For the pure chemical business, he expects four percent less volume. It is assumed that the supply of energy and raw materials, although expensive, is still sufficient overall for the year as a whole.
Should there be a failure in the gas supply, the production volumes are likely to fall even more sharply. Because then the industry will probably be forced to shut down parts of production.
Against this background, the time has now come for industrial policy, according to Kullmann. The VCI President certifies that the Federal Government has an extremely good policy with regard to securing the energy supply. Together with the Federal Network Agency, preparations are now being made for various scenarios in the event of a failure of further Russian gas imports. These talks are based on a great deal of “constructiveness and reason”. The industry as a whole is very concerned about a possible complete failure of Russian gas supplies and is therefore preparing for such a scenario.
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A lot also depends on the region in which the respective company is active. Because the regions would be affected differently in such a scenario. “The first to collapse in such a situation will be the companies in the south, and then in the south-east.” This is due to the fact that these regions are heavily dependent on natural gas storage facilities in Austria.
Overall, the chemical industry, as the largest industrial gas consumer, has consumed around 133 terawatt hours (Twh) of gas per year. About a third of the volume is used as a raw material, the rest is used to generate electricity and steam for the chemical plants.
The largest individual consumer is the industry leader BASF with its main plant in Ludwigshafen, where around 37 TwH of natural gas are used every year. The chemical giant has warned several times that it will have to shut down the plant completely if the gas supply falls below 50 percent of the maximum gas requirement.
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