German chems higher 2010 output forecasts dampened by EU outlook

18 May 2010 16:19  [Source: ICIS news]

TORONTO (ICIS news)--Germany’s chemical industry production is forecast to grow by 8.5% this year - up from an earlier projection of  5% - but confidence in export growth prospects have been shaken by the financial uncertainty in the euro zone, prompting economic sentiment to plunge, according to industry updates on Tuesday.

The country’s chemical industry trade group VCI said it revised its 2010 full-year production forecast upward after first-quarter production was “unexpectedly strong” - rising 1.9% sequentially from the 2009 fourth quarter and 14.9% from the 2009 first quarter. The comparison is against a weak 2009 when production fell 10% from 2008 amid the recession.

However, VCI also warned about risks to growth from a possible setback in EU export markets in the wake of Greece’s budget crisis. The EU is the German chemical industry’s largest export market.

First-quarter growth was driven by higher domestic sales of basic chemicals, the group said.

Chemical producers’ capacity utilisation rose by five percentage points to 82.8%, it said, adding that the chemical industry was almost back to its normal pre-crisis capacity utilisation.

The industry’s first-quarter sales were €38.5bn ($47.5bn), rising 3% from the 2009 fourth quarter and 16% from the 2009 first quarter.

Domestic sales were €16.3bn, up 7% from the 2009 fourth quarter but export sales rose only 0.5% to €22.2bn.

Chemical producer prices were up 0.8% from the 2009 fourth quarter and 0.7% from the 2009 first quarter.

However, the increase in selling prices was rather moderate when compared with significant increases in raw material costs due to higher oil prices and the weaker euro, VCI said.

The price of naphtha, the industry’s most important petrochemicals feedstock, averaged €508/tonne in the first quarter, up 15% from the 2009 fourth quarter, the group said.

Going forward, chemical demand would be affected by government fiscal tightening and consolidation in south European markets, it said.

Greece, Spain, Portugal and Ireland could face a long recession and there was even the risk of government defaults, the group said.

It remained to be seen if EU measures and financial supports to help governments avoid defaults would be successful, it added.

In a separate report on Tuesday, Germany’ ZEW centre for European economic research said economic sentiment in Europe’s largest economy plunged in May amid rising uncertainty over euro zone public budgets.

The centre’s sentiment indicator for Germany dropped 7.2 points in May 2010 to 45.8 points. The indicator is based on a survey of 275 analysts conducted between 5 and 17 May.

However, despite dampened expectations, financial market experts expected German business activity to continue its recovery over the next six months, the centre said.

($1 = €0.81)

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