31 January 2014 15:41 [Source: ICB]
After years of stagnation, forecasts for 2014 point to a turnaround in the region’s fortunes
Chemicals output could improve more strongly this year following a difficult 2013 for some parts of the industry, but the path back to growth has not been, and will not be, easy.
European trade group Cefic’s data show EU chemicals output down 0.7% between January and September in 2013 but improving confidence among chemical producers. Order books have begun to look a bit healthier. Production output growth was on a rising trend in the second and third quarters.
Chemical producers hope for a better year ahead
Copyright: Rex Features
Cefic’s most recent forecast, published in June 2013, suggested that chemicals output would contract this year but possibly grow by 1.5% in 2014. It appears that few in the industry would disagree with that cautious view.
Upstream, the industry is far from seeing robust demand growth from key sectors such as construction and automobiles. There is great concern about the slowdown in demand growth from China.
Saddled with the burden of high energy and feedstock costs, companies have run plants to match demand and sought to keep costs to a minimum. They might be expected to continue with that approach in 2014.
Solvay said in November, for instance, that it would invest in Asia, Latin America and North America rather than in Europe which it saw saddled with high costs and real competitiveness issues. The Belgium-based group’s sobering medium term forecast is for its chemicals output in Europe to grow by just 2% between 2012 and 2020 against a 40% increase in North America and 48% in Asia pacific.
A CAUTIOUS APPROACH
Companies simply aren’t prepared to invest in an economically-troubled and cost-challenged Europe when there are far more attractive options.
Europe’s chemicals producers are cautious about growth in 2014 generally let alone growth in Europe and particularly after the continued low rate of recovery experienced in 2013.
“We are still highly uncertain about the course and direction of the economy,” BASF CEO Kurt Bock said at the end of November. “We have seen volumes going up a little bit. Maybe in some countries the recession is behind us,” he added. “We are cautiously optimistic going into 2014.”
Industry giant BASF believes that there could be some upturn in Europe in 2014 alongside continued growth in the US. “At least in our case, in China we have seen quite good volume development in 2013 and we have no reason to believe that 2014 will be worse,” he said.
Translating growth into profits, however, has proved difficult in 2013, with prices under pressure and production costs (in Europe) still high.
Chemicals production in Germany is expected to grow by 2.0% in 2014 with sales up 1.5% to €191bn ($262bn), Germany’s chemicals trade group, the VCI, said in December.
“There will be an upward development – but a slow one,” said VCI’s president Karl-Ludwig Kley. The association thinks the global economy has passed through the trough and most VCI member companies believe that business is going to pick up. “We are cautiously optimistic,” said Kley.
VCI data show that Germany’s chemicals production excluding pharmaceuticals was up 1.0% in 2013, or 1.5% if the output of this sub-sector is included.
Sales of the sector overall, at €187.7bn were up 0.5%, but foreign sales were stagnant at €113bn.
Capacity utilisation was 84% overall, which Kley described as “quite good”. The only drop in production in 2013 was for basic chemicals.
Petrochemicals output was down 1.5% and the production of industrial gases, fertilizers and other inorganic base chemicals down 1.5% also. “Polymers were the positive exception among basic chemicals,” Kley noted, with a production increase of 3.5%.
Global chemicals production, including pharmaceuticals, will grow by 4.5% in 2014, at a similar rate to expected production growth for the sector in 2013. Chemicals production growth in the EU is likely to improve to 1.5% from 0.5% in 2013, the trade group forecasts.
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