German chemical industry outlook brightens

19 March 2012 00:00  [Source: ICB]

The fact that more than 80% of Germany's chemical production is destined for direct or indirect export shows just how dependent it is on the health of the global economy. After a pretty disastrous fourth quarter of 2011 in which German chemical output fell by 4.3% year-on-year, the outlook for the rest of the year looks much better in most end-use markets.

BMW production, BMW

 © BMW

Automotive production is forecast to rise in 2012

The German automobile industry association reported better sales in January in many markets with sales to north America rising strongly. Auto production is expected to rise 0.5% in Germany in 2012, 1% in the EU and 11% in the US.

The construction industry reported an improved business climate in January and two thirds of packaging manufacturers are more optimistic than three months ago. They expect sales to at least remain stable.

Although business confidence is returning in the US and across much of Asia, the exception is the country's neighbors in the EU, where 60% of German chemical output is sold. The Greek debt problem has been put on ice for now, but it may still suffer an unsustainable level of indebtedness if its economy continues on the current catastrophic path to depression. The only option may be an eventual default and exit from the eurozone.

This has dampened confidence and recovery prospects for the EU where stagnant GDP growth is forecast for 2012 and a 0.3% contraction is predicted for the eurozone, according to the European Commission. The chemical industry thinks in the long term, and some major new investments in German chemical infrastructure show the industry's confidence in the region's future for chemical production. Whilst the European market may remain slow growing it is huge so even tepid growth will still improve demand substantially.

Within the last couple of months two significant German investments have been made public. Germany's Bayer MaterialScience has won approval for its new 300,000 tonne/year toluene di-isocyanate (TDI) facility in Dormagen. For a modest €150m investment it will use its new gas-phase phosgenation technology to replace two older units. BASF, meanwhile, is spending a hefty €1bn also on a 300,000 tonne/year TDI plant, plus feedstocks upgrades at Ludwigshafen.

Both companies are investing much more heavily in Asia, to position themselves well to capitalise on the continued growth expected there. The German chemical sector is in good shape to benefit from what will hopefully turn out to be a strong 2012.

By: Will Beacham
+44 20 8652 3214

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