The Chemical Industry Has Been Severely Impacted
More than sixty percent of industry companies in Germany have reported facing severe or significant consequences as a result of the energy crisis.
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The chemical industry has been severely impacted by the recent increase in gas prices. Germany, as Europe’s leading producer, has been particularly affected. More than sixty percent of industry companies in the country have reported facing severe or significant consequences as a result of the energy crisis.
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The combination of low-cost Russian natural gas, advanced technology, skilled personnel, and efficient infrastructure allowed European products to compete successfully in the global market. However, the rising costs are reducing these opportunities nearly to nothing.
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There is currently no talk of recovery. Negative factors continue to affect the European chemical sector.
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The pharmaceutical industry is in a slightly better position, with minimal impact from the conflict.
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The crisis coincides with the sector’s commitment to transforming to achieve climate neutrality and transitioning to safe and sustainable chemicals. It is uncertain whether these goals can be achieved by 2050.
In 2022, two-thirds of chemical sales in the European Union (EU27) were generated by four countries: Germany (30%), France (18%), the Netherlands (11%), and Italy (9%).
Global production continued to grow in both 2022 and 2023, with China, the world leader, significantly increasing its output. However, the main European producer, Germany, experienced the biggest decline, due to rising prices for electricity and raw materials.
Throughout 2022, the situation for chemical enterprises continued to deteriorate, leading to a sharp decrease in production across all branches of the industry. This decline was more significant than during previous periods of economic downturn.
Global production continued to grow in both 2022 and 2023, with China, the world leader, significantly increasing its output. However, the main European producer, Germany, experienced the biggest decline, due to rising prices for electricity and raw materials.
Throughout 2022, the situation for chemical enterprises continued to deteriorate, leading to a sharp decrease in production across all branches of the industry. This decline was more significant than during previous periods of economic downturn.
Dynamics of chemicals production excluding pharmaceutical products, in per cent
Source: VCI
The chemical industry utilizes natural gas both as a feedstock and for the production of heat and electricity.
The consequences of the current crisis have resulted in significant layoffs. So, BASF, an industry leader, is cutting thousands of jobs and decommissioning energy-intensive facilities at its primary manufacturing facility in Ludwigshafen.
In addition to the considerable rise in natural gas prices, there has also been an increase in the price of naphtha, which is a crucial raw material for the chemical industry. The price of naphtha rose from €534 per tonne in 2021 to €732 per tonne in 2022.
The largest chemical producers, such as BASF and Air Liquide, are multinational groups, which enables them to diversify their costs and revenues across regions without incurring losses. This diversification is becoming more prominent. Here is an example of how BASF’s profitability has changed:
The consequences of the current crisis have resulted in significant layoffs. So, BASF, an industry leader, is cutting thousands of jobs and decommissioning energy-intensive facilities at its primary manufacturing facility in Ludwigshafen.
In addition to the considerable rise in natural gas prices, there has also been an increase in the price of naphtha, which is a crucial raw material for the chemical industry. The price of naphtha rose from €534 per tonne in 2021 to €732 per tonne in 2022.
The largest chemical producers, such as BASF and Air Liquide, are multinational groups, which enables them to diversify their costs and revenues across regions without incurring losses. This diversification is becoming more prominent. Here is an example of how BASF’s profitability has changed:
EBIT before special items of the BASF Group, billion euros
Although the energy crisis in Europe is considered to be largely resolved, issues in the industry continue to persist. Experts see no signs of improvement this year.
The international competitive position of European companies, particularly those based in Germany, remains challenging due to high energy and raw material costs.
“We are glad to see some bright spots, buy it is premature to draw conclusions. Slight improvements in public opinion polls do not necessarily translate into election victory, nor does better first-quarter performance indicate economic recovery. Profits have been generated primarily abroad and not within Germany, where structural problems continue to be unsolved,” said VCI CEO Wolfgang Große Entrup.
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