INSIGHT: Europe is losing Asia trade battle

02 June 2006 15:52  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--The outlook for European chemicals may be relatively bright but the statistics are pointing to at least one worrying trend.

Europe’s chemicals trade balance, lauded for years as a sign of sector strength, is weakening, in some cases fast.

The rush of chemicals imports from newer, faster growing and cheaper parts of the world, in other words, Asia, is beginning to bite.

The trend is clear and will accelerate as new production capacities come on-stream in China, India and elsewhere in the region.

Europe’s chemicals trade group Cefic noted in the latest issue of its barometer of industry health that the chemicals trade balance with countries outside the European Union (EU) in 2005 was modest.

Last year was a good one for the sector worldwide although for Europe imports grew more strongly than exports. Most competitive pressure was on organics, Cefic said. If you talk to executives across the sector, it is clear that the impact of imports in some fine and specialty chemicals segments is severe.

Overall, a positive trade balance matters as a measure of sector strength and influence. The balance in Europe excluding pharmaceuticals hit a high in 2003 of €41.3bn ($53.3bn) but fell to €38.9bn in 2004 and €38.0bn in 2005.

Europe often claims to be the world largest producer and market for chemicals of all sorts but its position is under threat. China, particularly, is moving fast up the chemicals league table and will soon be the world’s second largest national producer of chemicals. India’s influence in certain segments is significant and wider Asia’s influence on the global chemicals scene is growing fast.

Cefic noted also that the EU chemicals trade surplus with Asia excluding pharmaceuticals declined sharply in 2005. That trend will continue. Analysis shows that the EU’s competitiveness in chemicals compared with that of Asia was three times lower in 2005 than it was in 2004. A comparative advantage index that compares exports minus imports with exports plus imports was 36.2 in 1994 but just 10.8 in 2005, sharply down from 16.8 in 2004.

In 1995 the EU’s chemicals trade balance with Asia was worth €8.3bn. Last year it was worth €4.7bn.

The numbers are a reflection of the reality of a situation in which industrial growth is shifting fast to China, a country that has rapidly become the chief exporter of goods of all sorts to the world. It is noteworthy that European chemicals executives look to South America as the next region to threaten low cost imports to Europe. The potential impact, however, from that part of the world, pales in comparison to the competitive threat from Asia.

The latest sector update from well-respected Oxford Economic Forecasting (OEF), indicates that Chinese chemicals output grew by almost 20% last year. Growth of 21% is expected in 2006.

Most chemical companies have shed labour and operations in higher cost countries to enable them to compete effectively in the new chemicals world. Profits have risen, as a result. These firms have reduced domestic investment, OEF notes, choosing instead to share in China’s huge expansion where capacity is coming on-line at an increasing rate.

Under such influences, Europe’s chemicals trade with Asia will alter considerably, the flow switching in short order. The trade balance particularly reflects the underlying trend and indeed the major downside risk to chemicals growth for the current leading producing regions of the world – Europe, North America and Japan.

The drift of investment to Asia is no longer just that. OEF notes tellingly that prospects for world chemicals growth remain very strong relative to those of this triad.

By: Nigel Davis
+44 20 8652 3214

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly