INSIGHT: Europe chemicals face uncertain second half of 2010

25 August 2010 15:25  [Source: ICIS news]

By Hilde Ovrebekk

LONDON (ICIS)--A common denominator for chemical companies in the second half of this year is uncertainty in the outlook for the future. 

Despite generally good performances and a high level of demand during the first half of 2010, the future of the global economy is still uncertain, particularly in European markets.

So what are the prospects downstream? Consider one sector, the automotive industry.

European car makers saw an upswing in line with economic growth during the first half of the year, and most say they expect further increases in demand during the second half.

Germany’s BMW said at the release of its second-half results that “Continental Europe, and the German market in particular, should see further stabilisation”.

However, France’s Renault said at the halfway point this year that it expected the global automotive market to grow by approximately 8% in 2010 compared with 2009, despite an estimated 7-9% decline in the European market.

According to Audi, the automotive markets are recovering, but the various individual regions give a very mixed picture.

“Asia and North America will be the drivers of growth, while here in western Europe we are experiencing falling sales now that government economic stimulus programmes have come to an end,” said Rupert Stadler, chairman of the board of management at Audi.

Dieter Zetsche, president of ACEA (European Automobile Manufacturers’ Association) and chairman of the board of management of Daimler, said recently that China had already become the biggest automotive market.

“It’s a reality that the Chinese will learn to make better cars,” he said, adding that to be able to compete, the European industry would have to focus on innovation.

So, how is the market in Germany, Europe’s largest economy, expected to develop for the rest of this year?

Germany’s federal bank, the Bundesbank, raised its growth target for this year to 3.0% from 1.9% in June.

However, statistics show that the country’s record 2.2% GDP growth in the second quarter was mainly fuelled by exports.

The bank said the pace of growth would “normalise” in the second half of the year and the rate of export growth, which drove first-half GDP growth, would slow down in the second half.

And confidence is also dropping, according to the Mannheim-based ZEW centre for European economic research, which said its economic expectations indicator for Germany plunged 7.2 points in August to 14.0, the fourth monthly decline in a row.

The decrease in the indicator, which is based on a monthly survey of 284 analysts, showed that Germany's “enormous growth” in the second quarter was unlikely to continue through the rest of the year.

ZEW pointed to Germany’s dependence on exports and “major risks” for economic growth from weak development abroad especially in the eurozone and the US.

Germany’s chemical production is expected to increase by 8.5% this year, after a 10% decline in 2009 from 2008, according to trade association VCI.

However, during the second half, chemical production growth was expected to slow down compared with the 13% year-on-year growth in the first six months of 2010, partly due to lower second-half growth in the EU, the largest export market for Germany’s chemical producers.

The signs coming from downstream producers and analysts suggest the upturn may have hit a peak for now and more muted third-quarter and second-half results can be expected, but we should still be heading in the right direction.

Read Paul Hodges’ Chemicals and the Economy blog
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By: Hilde Ovrebekk
+44 20 8652 3214

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