29 June 2012 16:19 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS)--Europe’s chemical company CEOs and other senior executives tend to keep a low profile, particularly when it comes to politics. They might put their heads above the parapet from time to time to make a point nationally but they tend to leave lobbying to national trade associations and at the EU level to the trade group Cefic, which works away behind the scenes in Brussels and Strasbourg.
The signed letter from Cefic board members sent this week to Europe’s political leaders, therefore, underscores both the breadth and the depth of concern about the sovereign debt crisis. This is the first time the sector’s view has been expressed in this way, Cefic notes.
“The chemical sector is a fundamental part of European manufacturing industry, which is essential for sustainable growth. A stronger Europe, where stability and predictability prevail, is an essential prerequisite for a competitive European economy,” it says.
Chemical companies clearly fear the consequences of the crisis and the lack of action from Europe’s political leaders. They are right to do so. As the crisis has deepened, so has its impact on Europe’s economic growth and on chemicals demand.
Chemicals production in 2012 has been hit harder than expected. Cefic noted in its mid-year outlook, published on 14 June, that output growth is forecast to be at a standstill in 2012 after a weak 1.3% gain in 2011.
“The EU economy should stabilise during the second half, partially compensated by overseas demand and a weaker euro boosting eurozone competitiveness, Cefic Director General Hubert Mandery said. “A weaker euro should also help increase EU chemicals exports.”
EU chemicals output has fallen in each quarter following the strong first quarter of 2011 as the grip of austerity measures and the impact of the crisis on spending and employment have increased.
Cefic forecasts that chemicals output will be stuck 5% below the 2007 peak for the rest of 2012. The federation’s economists can only look to 2% output growth for the sector in the EU in 2013.
It expects petrochemicals production to grow by 1.0% in 2012 following a 0.9% decline last year. It forecasts no growth for polymers following a drop in output of 0.2% in 2011.Lower-priced oil is likely to lift activity but petrochemical producers will be exposed to de-stocking in the supply chain on the anticipation of lower product prices, Cefic president, Giorgio Squinzi said.
“Global competition remains fierce, both from the US shale gas boom boosting American manufacturing and from producers in the Middle East that hold a feedstock advantage and face lower energy prices relative to the EU market.
“Policymakers must look for ways to solve EU debt problems to help boost the economy and bring stability back the market. Otherwise, chemicals sector output will be dragged down further as demand for cars weakens and construction suffers continued overall weakness.”
The signed letter to EU politicians, who are continuing their meeting in Brussels on Friday, stresses that the climate of uncertainty is putting Europe’s growth, and the well-being of its citizens, at risk.
Industry needs stability and predictability, it says. “Only a more united and integrated Europe, with a common currency, will provide future generations with peace and prosperity," is an example of the language used.
"We look to you now for clear leadership," Europe’s chemical industry leaders say in the letter. It asks politicians: "To pursue the deeper integration of Europe; to undertake structural reforms to boost growth and employment; to establish a budgetary union, based on sound national accounts and integrated control of public finances; to begin a gradual harmonisation of fiscal policy.”
Advisory firm KPMG said in its latest chemicals publication. “The overall feeling [in the chemical industry] continues to be one of uncertainty and mixed signals.”
“Growth in China is slowing, the US economy is growing strongly but remains susceptible to outside shocks, as evidenced by the recent volatility on stock prices, while Europe continues to grapple with the trade-off between economics and political reality. In the chemical industry, the most recent worrying data is Cefic’s downgrade of European chemical industry growth for 2012 to zero percent.”
In its mid-year outlook, also published on Wednesday (28 June), the American Chemistry Council (ACC) forecast US chemicals production growth of 1.9% in 2012 compared with growth of 1.5% in 2011. The numbers data exclude pharmaceuticals so they are consistent with the Cefic forecasts.
Global chemicals production growth will be just 2.2% in 2012 from 4.5% in 2011, the US trade group said.
Breaking the forecasts down by segment, global bulk petrochemicals & organics and plastic resins production this year are forecast to grow by 1.8% and 1.9% respectively compared with much stronger growth of 7.2% and 4.5% year on year in 2011. In the US, bulk petrochemicals & organics output is expected to contract by 0.5% this year following a contraction of 4.2% in 2011. Plastics might fare a little better, the ACC suggests, with 2012 output of 1.0% from a contraction of 4.4% in 2011.A clearer direction for Europe may be forthcoming following the EU summit. After day one, share prices in Asia and in Europe are much higher, the financial markets reacting to measures proposed to bring greater EU fiscal and budgetary unity. Read Paul Hodges’ Chemicals and the Economy blog
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