21 June 2013 10:04 [Source: ICB]
The country is having its own chemical renaissance with new production capacities ready to come on line. Basic chemicals are leading the way
After a challenging 2009, the financial results of German chemical companies are putting people in a party mood once again, even though the fall of Europe's share in the global chemical market is still cause for concern.
Plant investment in Germany is on the upswing, signalling an increase in global competitiveness, with basic chemicals leading the way.
From the nuclear catastrophe in Fukushima, Japan, on 11 March 2011, to the Arab Spring in north Africa and the Arabian Peninsula, or the ongoing sovereign debt crisis in the eurozone, these events and the subsequent imbalances present huge challenges for the globally active chemical industry.
BASF's Ludwigshafen site is one of many in Germany where capacity expansions are taking place
Aside from these positive developments in Germany's chemical sector, the balance of power in the global industry has changed. After double-figure growth rates in the past decade, the chemical industry in China - with revenue of €735bn ($954bn) - was the biggest global market in 2011, followed by the US at €409bn, Japan at €175bn and Germany at €156bn.
The European Chemical Industry Council (Cefic) reported that Germany accounted for 29% of the €539bn in sales in the total European market in 2011, maintaining the lion's share. But Europe's share of the global market has dropped from 36% to 20% in the past two decades. Similar decreases have been registered from other chemical market determining industrial countries such as US and Japan, which are primarily down to the increased production capacities in the developing markets.
THE DRAGON'S SHARE
China produces almost half of the world's chemicals. The growing prosperity of the middle class in China and India - two countries that constitute a third of the world's population - has driven dramatically increased demand. In spite of climbing labour costs and political influence, especially in China, even Western companies were unable to resist this attractive market and invested heavily in modern production facilities in the hope of achieving high profits.
Along with new production capacities in growing markets, new large-scale plants are being built in regions with high proven reserves of oil and gas, especially the Arabian peninsula. An estimated cost advantage of $350/tonne shows why these regions are also becoming main producers of basic organic chemicals such as polyethylene (PE), polypropylene (PP) and ethylene glycol (EG).
The VCI said that Germany handled some 19m tonnes of fossil fuels, 2.7m tonnes of renewable feedstocks and around 20m tonnes of minerals in 2011. Production volumes of basic chemicals from 2000-2010 remained steady, and slightly declined for some chemicals. Meanwhile, the newly built facilities in the emerging regions came on a huge scale and also supplied some of the developed economies. Thus, we can deduce why in 2010 more basic chemicals were consumed in Germany than produced.
However, since 2009 in Germany, companies have planned to increase capacities in the basic chemicals segment just as much as in the high performance plastics, specialty chemicals and final product segments.
Around a third of the investments are in basic chemicals, and mainly in new plants. Alongside the 220,000 tonne/year increase in capacity at the Brunsbuttel site toluene-2,4-diisocyanate plants in Dormagen and Ludwigshafen with capacities of 300,000 tonnes/year are being built.
Plus, a series of investments were made in much needed precursors. In Dormagen, a new steam reformer is being built at a cost of €100m. In Ludwigshafen, there is an increase in production of nitric acid, chlorine, syngas and hydrogen, and the construction of a new hydrochloric acid recycling plant.
There are also two significant investments in chlor-alkali electrolysis. Thus the existing plant in Hoechst is being changed over to the most modern membrane technology and seeing its capacity increase by 50% at the same time.
In Leuna, a new facility with production of 15,000 tonnes/year of chlorine started up in July 2012. Further noteworthy investments include the new 150,000 tonne/year formaldehyde plant in Krefeld-Uerdingen and the 320,000 tonne/year high density PE (HDPE) plant in Munchmunster.
Expansions are taking priority in specialty chemicals where the investment volume per tonne of production capacity is relatively high on account of the technologically advanced and challenging processes.The capacity increase of the 1-Butene facility in Marl and the vinylforamide (VFA) activities in Ludwigshafen both require over €100m of capital. The polyvinyl alcohol (PVA) plant in Hoechst will cost around €60m, and the solution styrene butadiene rubber (S-SBR) facility in Schkopau around €90m.
The niche segment of high performance plastics constitutes the smallest group, and expansion is also the main theme here. The polyamide 6 activities in Leuna and Ludwigshafen are noteworthy, as is the investment tied into polyvinylidene fluoride plastics of over €60m in Gendorf.
Most investments in the final product sector are in the form of capacity increases. From a chemical point of view, these products are at the end of the chemical value chain, generally are sold to industrial consumers and are branded.
In this sector you find many functionalised C4 molecules, flame retardant materials, or catalysts such as methane sulfonic acid. On top of those there are also investments in new and innovative products such as carbon nanotubes, special membranes for water treatment, and biodegradable plastics.
STEELED FOR COMPETITION
The figures provided here are concerned only with investments already made public. They clearly show that the economic resurgence since 2009 has led to rapidly increasing investment activity in several chemical industry segments in Germany. Much of the investment is taking place in basic chemicals, against popular opinion. The main drive for these investments is ensuring the global competitiveness of the respective facilities, which is why so many of the investments involve bringing the technology up to date. Equally, the attractiveness of the market defies the supposedly high energy costs, which can be deduced from the not insignificant amounts invested in chlor-alkali electrolysis.
The investment in the other three sectors has common features, in that it is usually for a complicated process which requires highly-qualified workers from a variety of specialist areas. These are also often processes which hold potential for increase of process yield and increased efficiency, or are of a more innovative and commercially sensitive nature.
Due to the competitive global environment, there will also be further movement of production capacities with sensitive cost structures away from industrial regions. Because of its specific strengths, particularly in innovation, productivity and resource efficiency, Germany, alongside the US and Japan, will remain an attractive production location for the chemical industry.
Dr Thorsten Bug is senior manager, chemicals, with Germany Trade and Invest, the official investment promotion agency of Germany. He advises foreign chemical companies in securing access to the country. Dr Bug joined the organisation in 2008.
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