The chemical industry has little confidence

Economic situation - The chemical industry has little confidence

After a year of crisis, the German chemical and pharmaceutical industry does not expect a rapid recovery in 2024. Both the current business situation and expectations for the coming months are negative, explained the German Chemical Industry Association (VCI) in Frankfurt. The hopes of 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 will have to walk through it."

Steilemann warned against the further shutdown of chemical plants in Germany and increased investment abroad. Energy is still too expensive and the budget crisis now threatens even higher electricity costs, as federal subsidies for grid fees are to be discontinued. In any case, electricity prices for major customers in Germany 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 about the coming year. The VCI expects turnover to fall by three percent in 2024. Production in Germany's third-largest industrial sector after automotive and mechanical engineering is likely to stagnate. The economically sensitive chemical industry will be hit harder. Steilemann called for a reduction in bureaucracy, faster approvals, more digitalization and a prioritization of government spending. "One thing is clear: the time of full coffers and special funds is over."

Interlinked industries suffer together

The chemical and pharmaceutical industries have been through difficult times. The rise in electricity and gas prices in the wake of the war in Ukraine has hit the energy-intensive industry harder than almost any other in Germany. In addition, orders from industrial customers are staying away due to the weak economy. The cyclically sensitive chemical industry in particular, as a supplier to the struggling construction sector, is feeling the effects of the weak domestic market. As a result, production and sales slumped, albeit from a very high level.

This year, turnover fell by 12 percent to around 230 billion euros, estimates the VCI. Production fell by 8 percent - and in the chemical industry 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 the chemical industry in Germany, which has long been felt by employees. Industry leader BASF, for example, is reacting by cutting thousands of jobs, shutting down energy-intensive plants at its main site in Ludwigshafen and spinning off several divisions. Other chemical companies such as Evonik have also launched cost-cutting programs. The pharmaceutical industry, on the other hand, is feeling the effects of the end of the coronavirus vaccine boom - first and foremost the Mainz-based manufacturer Biontech, but also laboratory suppliers such as Sartorius and Merck.

Hopes of a rapid recovery in the chemical industry have been dashed. In a VCI member survey of around 350 companies, 45% do not expect an improvement until 2025 at the earliest. A third still expect a recovery in the second half of 2024, while only 13% see it in the first half of the year.

In the survey, almost 40% of companies are complaining about a significant drop in profits. Around 15% are in the red. On the other hand, 35% are reporting stable business. "The longer this situation continues, the more we have to expect that more plants will be shut down," warned Steilemann. Staff cuts can no longer be ruled out either. This year, however, employment in Germany remained stable at around 477,000 people.

Signs of hope for crisis-hit industry

Recently, the situation in the chemical and pharmaceutical industry has at least brightened somewhat. The fall in prices has slowed somewhat, meaning that turnover has not fallen quite as sharply this year as the VCI had initially feared. In addition, energy prices on the stock exchanges have fallen significantly since the peaks during the gas crisis in 2022.

Sentiment has also improved somewhat recently. According to the Ifo Institute, the business climate in the chemical industry rose in November for the third month in a row, albeit from a low level. However, international competition, some of which benefits from much cheaper energy, continues to be a major concern for the German chemical industry.

The German 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 is not a significant relief, criticized Steilemann. "The federal government has let us down here."

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1. The consequences of the war in Ukraine have led to significant electricity and gas price increases, affecting various industries in Germany, including Frankfurt on the Main's chemical and pharmaceutical sectors.
2. The high electricity prices, combined with the budget crisis, threaten to further increase electricity costs for major German customers, making it unaffordable compared to France and the USA.
3. France and the USA have lower electricity prices for major customers, which is beneficial for their respective chemical and pharmaceutical industries, creating a competitive disadvantage for Germany.
4. The economic downturn has negatively impacted BASF, one of the leaders in Germany's chemical industry, prompting job cuts, plant closures, and divisions' spin-offs.
5. The pharmaceutical industry, particularly in Mainz, has also been affected, with Biontech and suppliers such as Sartorius and Merck experiencing challenges due to the end of the coronavirus vaccine boom.
6. The automotive and mechanical engineering industries in Germany are essential, positioned ahead of the chemical industry in terms of size.
7. The chemical industry's turnover in Germany is projected to decrease by 3% in 2024, with production likely to stagnate, especially for the economically sensitive sectors.
8. The rise in electricity and gas prices and the weak economy have caused industrial customers to refrain from placing orders, affecting the cyclically sensitive chemical industry, which in turn supplies the struggling construction sector.
9. The construction industry's weak performance has affected production and sales in the chemical sector, contributing to a 12% decrease in turnover and an 8% drop in production in 2023.
10. The pharmaceutical industry has its own challenges in Germany, including the consequences of the war in Ukraine and the end of the vaccine boom, impacting both major manufacturers and laboratory suppliers.
11. Energy-intensive industries in Germany have received a reduced electricity price as part of government support, but some sectors, like the chemical industry, had hoped for more substantial relief.
12. The Gas crisis in Ukraine has put pressure on the chemical and pharmaceutical industries, which are energy-intensive, leading to fluctuations in turnover and increased costs.
13. The economic situation in the UK and the USA, particularly in the chemical and pharmaceutical industries, may serve as examples for German politicians and industry leaders to consider when addressing industry challenges and economic downturn.

Source: www.stern.de