26 May 2004 12:26 [Source: ICIS news]
LONDON (CNI)--Meeting the European Union’s (EU) high environment standards represents the stiffest challenge for chemicals firms in the ten new member states*, according to a report** by consultants PricewaterhouseCoopers.
These firms still have much to do to comply with current EU laws and the European Commission’s (EC) proposed registration, evaluation and authorisation of chemicals (Reach) system will have a major impact in future, it said.
The Reach system would hit manufacturers of small-volume products particularly hard – and could thus have huge consequences for the preponderance of small units in Central and Eastern Europe (CEE), PricewaterhouseCoopers noted.?xml:namespace>
Another key challenge for firms in the new member states is the change in energy costs that would result from reforms in the EU energy sector. Energy costs are a key factor affecting the competitiveness of these firms, especially those in energy intensive segments such as heavy chemicals.
In addition, chemicals firms in the new member states need to adopt the EU’s external trade regime with third parties, which may affect supply and demand flows. They also have to comply with EU labour laws and international accounting standards.
PricewaterhouseCoopers noted that many chemical producers in the new member states are competitive in their domestic markets, despite the fact that they have ageing plants with much smaller capacities than those in the older EU countries.
The bigger players in CEE have also started to consolidate their operations, but some large companies still need to be restructured and there are many small or medium-sized enterprises that could face a very tough future, said PricewaterhouseCoopers.
Competition would also come from new entrants from the West, which are attracted by high growth for some consumer products such as paints and cosmetics (and possibly detergents) in the new EU states.
Therefore, chemicals producers in the new EU states need to ensure that productivity continues to grow faster than wages. For many, this is likely to require investment in larger, more efficient production plants as well as an ability to move up the value chain so as to avoid getting locked into low value added activities such as basic chemicals production.
A move to higher valued added products
A move to higher valued added productsmay be especially difficult, as chemical producers in the ?xml:namespace>
If chemicals firms in the new member states continue to rely on relatively low labour costs to sustain their competitive advantage, they run the risk of being exposed to increasing competition from non-European producers operating with even lower labour costs, PricewaterhouseCoopers warned.
On a more optimistic note, the consulting group said chemicals companies in the new EU states will benefit from the transfer of technologies and injection of funds from Western countries.
CEE companies would also enjoy a lower cost of capital as their governments become more integrated with the EU and prepare to adopt the euro. This will go some way to encourage investments that are needed to sustain competitiveness.
Pricewaterhouse Coopers concluded that the rapid growth of local markets, the competitive threats posed by producers in the former EU-15 and elsewhere, and the continuing restructuring of the chemical sector suggest that further consolidation is likely in the CEE chemicals sector.
It added that the EU’s competition regime will also influence the pattern of this further consolidation.
Looking at various sectors of the CEE chemicals industry, PricewaterhouseCoopers said petrochemicals is a difficult market, as sourcing raw materials is often costly. The most competitive country is
In polymers, although most companies in the new EU states are fairly small, many should be able to hold their own in domestic markets as they are often able to translate low labour costs into fairly competitive prices.
For fertilisers, PricewaterhouseCoopers said producers have suffered from poor market conditions in the 1990s and demand in this sector remains fairly low.
Man-made fibres producers in the new member states will need to modernise in order to compete with larger operations in the former EU-15 and
In detergents - a number of multinational concerns have entered the arena and have achieved significant market share in a number of the new member states. While larger indigenous companies in this sector may still be able to compete, many of the small and medium-sized companies face more considerable competitive challenges, said PricewaterhouseCoopers.
The paints and coatings sector is mature and it has already experienced some consolidation. Demand is expected to grow, and a key issue is whether local producers or locally established international producers will capture most of the expected market growth, or whether further new entrants appear in the market, PricewaterhouseCoopers pointed out.
The fine chemicals sector in the new member states has been under considerable pressure in recent years. PricewaterhouseCoopers said that as yet, there has been relatively little foreign investment in the sector but the prospect of lower labour costs and a technically skilled workforce is potentially attractive to some of the big international producers.
In the performance chemicals sector, small but well-established producers will need to find ways to either reduce costs or differentiate their products to compete in future, said PricewaterhouseCoopers.
** Looking Forward: The Impact of EU Enlargement on the Chemical Industry. For further information, please contact Saverio Fato at Tel: +1 267 330 2407 or Pawel Peplinksi at Tel: +48 22 523 4433.
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