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Europe: Germany

12.01.2012  |  Meincke, H.,  Association of the German Chemical Industry, Frankfurt, Germany

Keywords: [petrochemicals] [refining] [natural gas] [economics] [trade]

The German chemical industry has an outstanding position inside Europe. Nearly 25% of chemical product sales in the European Union (EU) are by German chemical companies. Ranking behind China, the US and Japan, Germany is the fourth largest chemical manufacturer worldwide. Also, the chemical industry holds an eminent position within Germany’s overall economy. With more than 184 billion Euros, the share of manufacturing industry sales by chemical companies was well over 10%; thus, the German chemical industry is ranked third among all manufacturing sectors, behind automobile and machinery.

In recent years, German chemical companies successfully increased their competitiveness with restructuring and cost-cutting programs, as well as with innovative products and technologies. This explains the strong rebound after the 2008 economic crisis. The long-term prospects for the industry are favorable. Economic growth in all modern societies has always been strongly connected to advances in chemistry and the development of the chemical industry. The top challenges for humanity—e.g., renewable energies and raw materials, growing population and clean water—require new solutions, many of which can only be implemented through new materials, substances and technologies provided by the chemical industry. It is a true enabling industry and will keep this role in the future.

  Fig. 1.  2011 Growth indicators for the German
  chemical industries, %.



Business situation

The German chemical industry can look back on a successful 2011 financial year overall. Production increased by 2.2%, prices rose by 5.2% and the turnover for the sector as a whole rose by 7.7% to 184.2 billion Euros. These improvements also had a knock-on effect on the labor market. The German chemical industry employed around 12,000 additional people, which is a 3% increase for labor.

However, these figures cannot hide the fact that the recovery has run out of steam, even in Germany. The sovereign debt crisis in the US and Europe came to a head in the summer of 2011. The US came close to insolvency because the debt ceiling had been reached and the political maneuvering of both political parties initially prevented it from being raised.

In Europe, it became clear that the measures already in place were not enough to save Greece and other countries with high debt levels from insolvency. In the second half of 2011, economic growth continued to slow down. Research institutes and international organizations, such as the International Monetary Fund and the Organization for Economic Co-operation and Development (OECD), reduced their growth forecasts. There were renewed fears of recession. Citizens and companies alike were plunged into uncertainty. The economic setbacks were felt early on by the chemical industry. In Germany, chemical production dropped from one quarter to the next. Even the Q4th of 2011 failed to bring the anticipated trend reversal.

Prices

Higher raw material costs in 2011 forced many companies to raise the prices of their products. But there has been a slight drop in raw material costs in the course of the present year. With a slower demand, the upward trend of prices ended in the Q4th. The average prices of chemicals and pharmaceuticals were 5.2% higher than they had been one year ago. Price increases were recorded in almost all sectors. Only pharmaceutical prices declined.

Sales and international trade

In 2011, total sales of the German chemical industry increased by 7.7% to 184.2 billion euros. Business with customers abroad developed somewhat more dynamically than domestic business. Foreign sales of German chemical companies rose by 8.8% to €108.9 billion. Domestic sales improved by 6% to €75.3 billion.

Exports—comprising foreign sales by German chemical companies, re-exports and additionally chemical exports by other industries—rose by 5.8% to €150.6 billion. Such trends make Germany once again the world champion in chemical export activities. Strongest growth rates were achieved in business with Asia and South America. In addition, customers in neighboring European countries increased their orders with German chemical companies. As the business situation of German industry stabilized, imports of chemical products went up too: they totaled €108.7 billion and were 7% higher than last year. With almost €42 billion, German chemical companies once more significantly contributed to the export surplus of our country in 2011.

Employment

The good position of the chemical industry in 2011 positively impacted the labor market as well. Following a period of not filling labor vacancies during the economic crisis, German companies returned to hiring new staff. New hiring is also be motivated by concern over the growing shortage of qualified personnel. As a result, the number of jobs in the German chemical industry rose by 3%. In total, the German chemical industry had 427,000 staff in 2011.

Investment and R&D spending

With the fast recovery of the German chemical business, and especially with high capacity utilization and the good earnings situation, companies decided to forgo their reserved investment attitude, a trend that continued in 2011. Since 2010, the chemical industry invested some €5.8 billion in buildings and plants; for 2011, we estimate investments to total roughly €6.4 billion. This corresponds to a 10% increase. But 2012 investment plans are more cautious. In view of a less favorable economic environment situation and the threatening energy costs, investment decisions are currently being reconsidered.

According to VCI estimates, 2011 research spending for the chemical-pharmaceutical industry increased by 6.5% against 2010 to well over €8.8 billion. Out of this total, more than €5 billion were spent by the pharmaceutical sector. This high R&D spending pays off, as it keeps strengthening the international competitiveness and the success of German chemical companies.

Outlook

Since December 2011, conditions have been improving for the German chemical industry. Confidence is gradually returning. The financial situation appeared brighter, and the economic prospects are now positive again. The trough appears to have been reached in Q4 of 2011. In the coming months, a renewed sense of buoyancy can be expected, although only time will tell whether this confidence is justified. The economy is still in a critical condition, and prudence is needed. The chemical companies must, therefore, proceed with caution as there could still be further setbacks ahead.

We are confident and expect to see a further slight increase in production and turnover in 2012 compared to the previous quarter. However, in comparison to the very good start to the year in 2011, it is likely that we will experience a substantial loss initially. Only as the year continues will the growth rates move back into the black.

Our forecast for 2012 has to be set against this background. German chemical production will remain at the level of the previous year. We are not expecting to see any appreciable growth this year. The price increases are slowing. This year, chemicals and pharmaceuticals are likely to show price rises of 1%. The turnover of the sector as a whole is, therefore, also expected to increase by 1% to a total of €186 billion.

After two years of substantial upsurge, the German chemical industry will experience a pause in growth.

The industry must cope with this condition. The prospects for 2013 appear to be more positive: Experts expect to see a return to significant growth both in the GDP and in industrial production. The chemical industry should be able to benefit from this. As things currently stand, we can expect to see a 3% growth in German chemical production. HP



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