Germany's VCI cuts 2003 production growth forecast by half to 0.5%

27 May 2003 13:13  [Source: ICIS news]

FRANKFURT (CNI)--Germany’s chemical industry association VCI has again revised downward its predictions for business growth in 2003.

In its report on the first quarter, published on Tuesday, the association said it now expects production for the full year to be only 0.5% higher than in 2002.

This is half the growth predicted as recently as March this year and only a quarter of the increase forecast in December 2002.

 

Inventory restocking prompted a 1.6% increase in German chemical  production in the first quarter of 2003 compared with the Q4 last year. However, VCI said output was down 0.5% compared with Q1 of 2002.

 

In today’s report, the association pointed to the “uncertainty” still dogging the industry well into the second quarter. Despite the quick end to the Iraq war, it said German chemical producers see “few positive signs” that could indicate an economic upswing in the second half of this year.

 

Europe - the most important chemical market for the German industry - may take longer than expected to recover from the current slump, the VCI predicted, pointing out that Germany will post the lowest growth of all European countries this year.

 

While declining oil prices and the good progress made by economies in Asia and central and eastern Europe give rise to “cautious optimism,” the association said the industry is less optimistic overall than in recent months.

 

Most German chemical companies expect, at best, a slight recovery in 2003 and not before the second half, VCI added.

 

Production and sales in the first quarter of 2003 were higher than generally expected, however, a development the association attributed to customers rebuilding inventories in anticipation of higher selling prices for chemicals.

 

In total, selling prices rose 3% in the first quarter against the 2002 fourth quarter and industry-wide sales revenues increased by 5% to Euro34.5bn ($41bn). The improvement against the 2002 first quarter was 4%. 

 

Contract prices for primary chemicals were some 10% higher in Q1 2003 compared with Q4 2002. But VCI pointed out that higher selling prices for chemicals have not led to improved margins. On the contrary, it said crude oil on spot markets was priced 17.5% higher in Q1 2003 compared with Q4 2002, and naphtha cost 23.5% more. Without the rise in the value of the euro against the dollar, the price hike German chemical producers had to bear would have been much greater.

 

Demand from the German home market has continued to be soft this year. VCI said first-quarter chemical consumption improved by only 1% against the fourth quarter of 2002. Despite the increase in the value of the euro, exports remained the motor of growth, with sales up 6.1% to Euro18.3bn. Sales to domestic customers rose by only 2.4% to Euro16.2bn.

 

Europe again accounted for the lion’s share of German chemical industry turnover in the first-quarter. Sales to European Union (EU) countries outside Germany rose 3.5% to Euro10.3bn, with sales to central and eastern Europe up 6.5% to nearly Euro2bn.

 

German chemical sales to the US expanded by 7% to Euro2.1bn, and sales to Japan advanced by 12% to Euro599m. Sales to East  Asia, excluding Japan, expanded by 8.5% to Euro1.25bn. The “continuous strong growth of East Asian industry” gives the German chemical industry “hope for the future,” said the VCI. However, it noted that exports to this region (6% of the total) are still “relatively low.” Exports to Latin America improved by 1.5% to Euro 498m.

 

VCI’s analysis of the German chemical industry’s performance by production sector shows differentiated development. In production and selling prices, petrochemicals and derivatives took a leap of almost 10% leap in Q1 2003 against Q4 2002 and advanced by 7.6% against Q1 2002. The figures for most other industry segments were negative. Only detergents and personal care products showed some improvement compared with the 2002 first quarter.

 

The sales picture looked somewhat better. Led by agrochemicals and polymers, which VCI said profited from seasonal demand, most segments saw turnover increases, if only slight. As base chemicals profited from the inventory effect, the association said fine and speciality chemicals, which at 25% now account for the largest share of German chemical production, failed to show any recovery.

 

Pharmaceuticals, which in past economic downturns have boosted chemical industry business, will not be able to perform that function this year, warned the VCI. German drug sales were down sharply in the first quarter. In 2002 the detergents and personal care products segment benefited from the trend to consolidation in the industry, but the association said this effect “has now played out.”

 

Despite the difficult economic background, the drain on employment across the German chemical industry has come to a standstill, according to the VCI. On average in the first quarter, the industry’s companies employed 465 000 people, a 0.1% increase against the 2002 fourth quarter.

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