Think Tank: EU chems face slow economic growth

26 May 2014 00:00 Source:ICIS Chemical Business

“Shock” figures from the Netherlands and flat growth from France and Italy have piled on the woes on the eurozone. First-quarter eurozone GDP grew by just 0.2%, according to EU statistics agency Eurostat. Germany’s economy continued to expand relatively strongly. But a Q1 GDP contraction of 1.4% in the Netherlands, was worse than expected.

EU passenger car registrations were up in April, year on year, but growth was only half that seen in March. Growth over the first four months of the year was 2.9% in Germany, 3.7% in France, 5.0% in Italy and 12.5% in the UK.

Electricty plant Rex Features

Rex Features

Electricity costs are 50-100% higher in Europe than in the US

Netherlands trade group VNCI said chemicals production rose 7% year on year and was now back to pre-crisis levels. Q1 sales were up about 3% in the Netherlands, with prices down 4%.

“Low energy prices outside Europe are causing a fundamental shift. Large investments are being put on hold or moved outside Europe because Europe has relatively high prices for energy and raw materials. Innovation is often smothered by too many laws and regulations,” said VNCI chairman Werner Fuhrmann.

The European chemical industry has a real battle on its hands on energy and innovation. European trade federation Cefic’s director general, Hubert Mandery told an informal EU competitiveness council meeting in Greece on 12 May that natural gas is three times more expensive in Europe than in the US and electricity is 50-100% costlier. “Feedstock costs in the US and the Middle East are in another league,” he said.

“The EU has closed only half of the innovation gap vis-a-vis the United States, and there are still substantial differences in innovation performance within the EU,” he added.

Certain, large-scale, chemicals manufacture is under threat but there are a number of factors working in the sector’s favour. Germany’s chemical trade group VCI, on 13 May, reported strong sequential and year-on-year production growth for fine and specialty chemicals in Q1 versus contraction in inorganics, petrochemicals, derivatives and polymers.

Constantine Biller, partner with UK-based M&A advisor Clearwater Corporate Finance, said the UK’s small and start-up chemicals sector had strengthened markedly built on a sound science base, strong trading and logistics links, and a healthy venture capital market.

Small chemical companies in the UK have become hot property and are attracting interest from larger firms and from private equity, so they must be doing something right.

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