Strong Economy is Driving Chemicals Business
According to ifo´s World Economic Survey dating from November 2017, the ifo Economic Climate Indicator for the euro zone hit a new high. In the fourth quarter of 2017 it reached its highest level since autumn 2000. The upturn in the euro zone will continue in the months ahead, but is expected to lose some of its impetus.
Chemicals Business Climate Improving
According to another survey, conducted by the Commission of the European Union, the chemicals business situation became more favourable in the third quarter of 2017. The chemicals business climate remained satisfactory, improving slightly in the third Quarter of 2017. Last but not least, chemicals business confidence is still above the long-term average.
Cefic, the European Chemical Industry Council, is expecting a solid 3% growth of chemical output in the EU in 2017, driven by a growing demand from customer industries. A slight deceleration to around 2% is forecast for 2018. Responsible for 1.1% of the EU’s GDP and employing 1.2 million people, the EU chemical industry supplies virtually all sectors of the economy and is the third largest investor in EU manufacturing industries. The recovery of the chemical sector follows the overall economic growth in the EU in the first three quarters of 2017, driven by a robust consumer demand as well as investments in new production capacities. The growth of the EU manufacturing production, primarily in the automotive, construction, metal production and electronics sector, has led to an increased domestic demand for chemicals. Furthermore, exports of EU-produced chemicals to, among others, Asia and Russia have increased.
Marco Mensink, Cefic Director General: “The momentum is growing for the EU chemical industry to achieve its maximum production volumes. This will not only help economic growth but will also drive innovation as the solutions provided by the chemical industry help develop cutting-edge technologies and processes in nearly all sectors of the EU economy from consumer electronics to medicines.”
Although the 2018 industry outlook looks rather positive, the chemical industry remains at risk of investment leakage due to high energy and feedstock prices as well as carbon costs under the EU Emission Trading System (EU ETS).
In Germany, 2017 was an outstanding ly good year for the chemical-pharmaceutical industry – with major sales growth by over 5%. Strong business of industries across Europe, which further picked up in the course of the year, brought significant production increases. Capacity utilisation remained high. All sectors, including basic chemistry, recorded volume growth, as reported by the German chemical industry association VCI in December 2017. Foreign business benefitted from the robust demand from China, the brisker US economy, and the economic stabilisation of emerging markets. In total, German chemical production (including pharma) rose by 2.5% and led to the highest employment level for 13 years, with 451,500 staff.
Chemicals Prices Surge 5.3%
Producer prices were above the previous year’s level. In the EU chemicals sector, producer prices grew 5.3% from January to August 2017 compared to the same period of 2016. Most chemicals sectors posted growth on prices. Petrochemicals saw strong price changes, while paints and crop protection recorded a price increase of about 1%. Consumer chemicals prices edged up by just 0.6%. Figures also show a drop in chemicals prices by 1.1% in July–August 2017 compared to May–June of the same year.
Capacity utilisation reached the value of 83.8% in Q3-2017, some 3% above the long-term average, and above average for the sixth consecutive time. EU capacity is close to its peak level over the years (2008–2017). The situation varies considerably from one EU country to another. The UK, Spain and Austria are below their peak level. The situation is better in Italy, Germany (86.7%), France, and the Netherlands, where only 2–3% of additional capacity is needed to catch up. Belgium posted the highest capacity level in Europe in Q3-2017. Poland has already reached its peak level.
Employment Improves Significantly
Employment in the EU chemical industry increased due to the better economy. Over the whole period, employment grew 1.1% from January to June 2017. In Germany alone, 481,500 persons were employed in the chemical industry in 2017, 1% more than in 2016.
Sales generated by EU companies in the EU single market reached the value of €214.6 billion through June 2017. This represents an additional revenue of €16.0 billion (8.1%, y-o-y). When including both the European Union and non-EU countries in Europe, total sales reached €597 billion in 2016, or 17,8% of world chemical sales.
But despite the excellent economic framework in 2017 and the positive outlook for 2018, there are also challenges ahead. According to Cefic, the EU chemical industry is facing fierce competition from China and NAFTA countries which currently dominate the global chemicals market. While sales grew from €334 billion in 1996 to €507 billion in 2016, the EU´s share of the global chemicals market more than halved from 32.5% to 15,1%. This is a dilution effect –global sales more than tripled to €3,360 billion in this period, a trend expected to continue in the future.