EU Chemicals Sector

The European chemical industry may look strong enough. According to the European Chemical Industry Council Cefic the EU chemicals net trade surplus reached 29.9 billion euro during the first seven months of 2013 – a 1 billion euros improvement on the same period last year. Production capacity utilisation in the EU chemicals industry increased to 79.2 per cent in the third quarter of 2013. Yet despite this positive news the European chemical industry faces clouds ahead. In the long term increasing energy costs will exert intense pressure on companies in Europe.

                    
For Managers
The EU chemicals net trade surplus reached 29.9 billion euros during the first seven months of 2013 - a 1 billion euros improvement on the same period last year.
The demand for chemicals is stagnating in Europe, and the growth forecasts are cautious for thecoming years. 
The European chemical industry will face far-reaching changes in the years to come.  
                

Picture: © Sergey Nivens

Renaissance of North America - Investments of German chemical industry outside of Germany. Source: German chemical industry association VCI

More foreign investments - For the first time since 2001, foreign investments by the German chemical industry are higher than investments at home

More Investment Outside of Europe
Production in the German chemical industry increased by 1.5 percent in 2013. A greater than expectet 1.0 percent price drop meant that sales rose by only 0.5 percent to 187.7 billion euros. A data gathering exercise done by the German chemical industry association VCI and based on figures from 2012 showed that investments by its member companies increasingly went to regions outside Europe. In 2012, foreign fixed asset investments by German chemical companies rose by some 25 percent to 7.7 billion euros while domestic investments stagnated at 6.3 billion euros. For the first time since 2001, foreign investments by the German chemical industry are higher than investments at home.
But the industry is „cautiously optimistic“ at the start of 2014. According to VCI the demand for chemicals is stagnating in Europe, and the growth forecasts for the coming years remain cautious. By contrast, the demand for chemical products is rising especially in emerging markets. This makes Asia and Latin America attractive for investments by chemical companies: In 2012 the investments by German chemical companies in these regions went up by 27 percent to 2.6 billion euros.
Another winner is the USA. Due to cheap gas as energy and feedstock the US is experiencing an inward investment renaissance. At present, electricity in Germany is roughly two and a half times more expensive than in the US; the gas price is even three times higher. In the past three years German chemical companies have invested some 6.5 billion euros in new production plants or in expanding existing ones in North America. In 2012, German chemical industry investments in North America rose by 54 percent to around 3.2 billion euros. The fact that over 41 percent of their foreign investments meanwhile go stateside underlines the renewed attractiveness of the USA for German chemical businesses.

Risks and Opportunities of a Globalized Gas Market
The chemical industry associations in Germany, France and the UK are therefore advising their governments to rethink their positions on shale gas fracking and to take measures to actively lower energy and gas prices for energy intensive industries in order to close the gap with operators in the US. In a press release dated 29th of November, Steve Elliott, CEO of the British Chemical Industries Association CIA, warned of a new cost burden coming through European environmental regulation, especially the Industrial Emissions Directive (IED): „UK chemical business alone could potentially need to make investments of approaching £1 billion to satisfy a best techniques criteria which will have no meaningful benefit on the environment“. Also in November the French Chemical Industries Association UIC tackled the ban of fracking by the government in Paris: „ The lack of strategy for a competitive and reliable supply of oil in France represents one of the greatest threats to our industry“.
While on the one hand European chemical industries associations try to build up pressure on their governments, chemical companies on the other hand undertake measures to increase their competitiveness. For example, companies are looking for new sources of raw materials. These include bio-based raw materials, or the replacement of expensive naphtha by low-cost natural gas. Because, in particular, by exploration of unconventional gas and transport of LNG by tankers, the global gas market has been set in motion. All in all, the European chemical industry will face far -reaching changes in the years to come.