Energy-intensive chemistry has experienced difficult times with the war in Ukraine and the gas crisis. Now it is suffering from the economic downturn. After all, the industry association sees individual signs of hope.
After weak business, the crisis-plagued chemical industry does not see a rapid turnaround in 2023, but sees slight signs of recovery. After the long drought phase in which the chemical industry suffered heavy production losses amid the energy crisis, the first hope is emerging, said Wolfgang Große Entrup, general manager of the Association of the Chemical Industry (VCI), in Frankfurt.
“Since February, individual companies have reported a slightly improved order situation – especially abroad.” So hopes rest on the USA and China. But these are individual bright spots, emphasized Große Entrup. A recovery is not expected until the second half of the year at the earliest.
Overall, the road ahead for the chemical and pharmaceutical industries remains rough, the association emphasized. Germany’s third largest industrial sector after car and mechanical engineering expects sales to fall by 3.5 percent this year as prices fall. At the same time, production is expected to stagnate, as the VCI announced.
“Not only the chemical-pharmaceutical industry, but the entire domestic economy continues to suffer from the sluggish economy and structural problems,” stated Große Entrup. Because of the economic downturn, there is still a lack of orders from industrial customers.
Far from pre-crisis levels – but initial rays of hope
Last year, sales in the chemical and pharmaceutical industry fell by a good 12 percent to 229.3 billion euros compared to the previous year. Production shrank by 7.9 percent with weak utilization and by over 10 percent in chemicals alone. The pre-crisis level of 2021 was missed by almost 15 percent overall.
At the end of the year there were further declines overall, but also a little hope. Chemical production alone grew slightly by 1.2 percent in the fourth quarter compared to the same period last year. Despite the headwinds, employment remained stable at around 477,000 people in Germany – in 2020 it was still around 464,000.
Ifo Institute sees hope that the trough will end
The Munich Ifo Institute also recently saw some hope for the beleaguered industry. Accordingly, the business climate in chemicals improved slightly in February from a low level. “The climate in German chemistry is still rough, but there were also some surprising bright spots,” said Ifo industry expert Anna Wolf.
For the first time in almost two years, demand for chemical products has increased and there are more orders than in the previous month, according to the Ifo Institute. The companies expanded production in February and the first companies were refraining from further price reductions. “These results, together with the normalization of electricity and gas prices, raise hopes that the trough will soon end,” said Wolf.
The chemical industry is experiencing a deep crisis due to the rise in energy prices in the wake of the Ukraine war and the weak economy. In the pharmaceutical industry, on the other hand, the boom for vaccines during the corona pandemic has ebbed.
While gas prices have fallen significantly again, the energy-intensive chemical industry in particular is suffering from electricity prices that are high by international standards. While major industrial customers in Germany recently paid just under 16 cents per kilowatt hour, according to VCI, competitors in the USA had to pay around 4.4 cents. However, the relatively expensive energy does not affect all companies equally: while according to VCI information, around half of the companies recorded stagnating or significantly increasing profits in 2023, the other half recorded significant declines or even losses.
Corporations are cutting jobs
Some heavyweights have already responded to the harsh environment. The industry leader BASF is cutting thousands of jobs, shutting down energy-intensive systems at its main plant in Ludwigshafen and recently announced further cuts there. By the end of 2026, an additional annual cost of one billion euros should be saved at the headquarters – combined with job cuts that have not yet been quantified. And the Essen-based company Evonik is cutting up to 2,000 jobs worldwide as part of a major administrative restructuring, including around 1,500 in Germany.
In order for the industry to get back on its feet in its delicate recovery, it needs secure framework conditions and political support, demanded Große Entrup. The Federal Government’s Growth Opportunities Act and the planned reduction in bureaucracy were not enough. He called for less regulation, faster approvals and relief from energy prices. “We need massive relief for the German economy.”
Source: Stern
