Ukraine war, gas crisis, economic downturn: the German chemical industry has had turbulent times. But stabilization of the important industrial sector is still a long time coming.
The German chemical and pharmaceutical industry does not expect a rapid recovery in 2024 after a year of crisis. Both the current business situation and the expectations for the coming months are negative, explained the Association of the Chemical Industry (VCI) in Frankfurt. The hopes for an economic recovery have not been fulfilled, said VCI President Markus Steilemann. “We are in the middle of a deep, long valley. And it is still unclear how long we have to walk through it.”
Steilemann warned against further shutdowns of chemical plants in Germany and increased investments abroad. Energy is still too expensive and with the budget crisis there is now a threat of even higher electricity costs, as federal subsidies for network fees are to be abolished. In any case, electricity prices for large customers in this country are almost four times as high as in the USA and almost twice as high as in France.
The chemical and pharmaceutical industry is pessimistic for the coming year. The VCI expects sales to fall by three percent in 2024. Production in Germany’s third largest industrial sector after automobile and mechanical engineering will probably stagnate. Chemicals, which are sensitive to the economy, will be hit harder. Steilemann called for a reduction in bureaucracy, faster approvals, more digitalization and prioritization of government spending. “One thing is clear: the time of full coffers and special assets is over.”
Interconnected industries suffer together
The chemical and pharmaceutical industries have had difficult times. The rise in the price of electricity and gas in the wake of the war in Ukraine has caused problems for the energy-intensive industry like no other in Germany. In addition, orders from industrial customers are missing due to the weak economy. The chemical industry, which is sensitive to the economy as a supplier to the ailing construction industry, is particularly feeling the effects of the weak domestic market. As a result, production and sales collapsed, albeit from a very high level.
This year, sales fell by 12 percent to around 230 billion euros, the VCI estimates. Production fell by 8 percent – and in chemistry alone by 11 percent. The industry’s capacities remained underutilized at an average of around 77 percent.
Consequences for employees in Germany
The crisis has left its mark on Germany as a chemical location and has long been felt by employees. Industry leader BASF, for example, is reacting by cutting thousands of jobs, shutting down energy-intensive systems at its main plant in Ludwigshafen and outsourcing several divisions. Other chemical companies such as Evonik have also launched savings programs. The pharmaceutical industry, in turn, is feeling the end of the boom for corona vaccines – above all the Mainz manufacturer Biontech, but also laboratory suppliers such as Sartorius and Merck.
Hopes for a quick recovery in the chemical industry have been dashed. In a VCI member survey of around 350 companies, 45 percent do not expect an improvement until 2025 at the earliest. A third expect a recovery in the second half of 2024, while only 13 percent see it in the first half of the year.
In the survey, almost 40 percent of companies complained about a significant decline in profits. Around 15 percent are in the red. On the other hand, 35 percent have stable business. “The longer this situation lasts, the more we have to expect that more plants will be shut down,” warned Steilemann. A reduction in personnel can no longer be ruled out. This year, however, employment in this country remained stable at around 477,000 people.
Sign of hope for a crisis-hit industry
Recently, the situation in the chemical and pharmaceutical industries has at least brightened somewhat. The fall in prices has moderated somewhat, so that sales this year did not fall quite as much as the VCI initially feared. In addition, energy prices on the stock exchanges have fallen significantly since the peaks during the gas crisis in 2022.
The mood has also improved somewhat recently. According to the Ifo Institute, the business climate in chemicals rose for the third month in a row in November, albeit from a low level. However, international competition, some of which benefits from much cheaper energy, continues to cause great concern for the German chemical industry.
The federal government has granted energy-intensive companies a reduced electricity price – but the chemical industry had hoped for more with a broad state-subsidized industrial electricity price. The electricity price package does not provide any significant relief, complained Steilemann. “The federal government has let us down here.”
Source: Stern
