Germany’s chemicals prepare for ‘less optimistic’ 2019 as upswing nears end – VCI

LONDON (ICIS)–Germany’s chemicals industry’s outlook for 2019 is “less optimistic” due to looming global trade conflicts, a slowdown in the country’s economy and Brexit unknowns, trade group VCI said on Tuesday.

Germany is the largest chemical producing country in Europe. In 2018, the sector’s total sales surpassed for the first time the €200bn mark.

“The signs are quite clear: The upswing in Germany is nearing its end. Growth of the overall economy is likely to further lose in momentum in the course of 2019,” said the trade group.

“The trade order in which the German chemical and pharma industry achieves its successes is in danger … Business sentiment in German chemical and pharmaceutical companies cooled towards the end of the year,” added VCI’s president Hans Van Bylen.

He added that the US and China will only accept an “economically strong and politically united” Europe as a partner at eye level, adding that individual European countries alone have no chance of being heard on the world stage.

The trade group has been vocally critical of Brexit in the past and repeatedly demanded from EU policymakers a united voice in the world stage.

Moreover, VCI said the German government could do more to help chemicals increase its competitiveness at a global level, asking for tax cuts and “targeted political” support.

“In particular, this is about innovation and investments in research and development, stable and favourably priced energy supplies, the tax burden on companies, and an infrastructure that is viable for the future,” the trade group said.

VCI said to ICIS in November that rising electricity prices during 2018 were a “big concern” and repeated its call for more political support to overcome that.

Political support would also be needed to lower what VCI considered the “tax burden” chemicals companies need to endure in Germany, where corporate tax would be higher than global competitor, putting another strain to the industry’s competitiveness, it said.

“And finally, we need an infrastructure that is viable for the future. This holds true for transport routes and electricity grids – and in particular for a digital infrastructure, which includes all-area 5G,” it said.

The low water levels on the River Rhine have been putting a logistical strain on German chemical companies which use the waterway as a key transport route.

While water levels have increased in the past 24 hours, and are expected to increase further this week, a dry winter and potentially lack of snow in the Alps could bring back problems in the spring of 2019.

Several companies have had production problems and declared force majeure on several products, including Germany’s chemical major BASF whose flagship site of Ludwigshafen is located by the Rhine.

“The hope prevails that a normalisation of the water level of the River Rhine and the going back into operation of shutdown plants will enable a return to higher production [in 2019],” said VCI.

“If carmakers get a grip on the challenges in vehicle registration, the demand from the automotive industry and its suppliers from the metal and electrical industries should be back on the increase too.”

The powerful German automotive industry suffered a dip in the second half of 2018 on the back of new emissions testing regulations.

VCI, however, is not too hopeful these two factors will work in the industry’s favour.

“In view of the less favourable development of the global economy, spreading protectionism and economic sanctions, such an increase in business will be restrained and probably short,” it said.

Germany’s chemicals leave behind a “good” year, the trade group added, although it conceded that production for many chemicals had actually decreased.

The positive figures came from higher pricing, helped by increasing crude oil prices throughout the year.

However, crude prices took a sudden turn downwards in October from which they have not recovered, despite an improvement in the last couple of days on the back a truce in the US-China trade war.

Germany’s chemicals sales increased by 4.5% in 2018, year on year, to €204bn in 2018, while output was up 2.5% and prices rose by 2.0%, VCI said.

The improvement in output, however, was mostly driven by an 11.5% improvement in the pharmaceutical sector.

Output of inorganic basic chemicals dropped 2.5%, polymers and petrochemicals output dropped 2% each, while manufacturers of soaps, detergents and cleaning products or cosmetics produced 3% less than in 2017.

Fine specialty chemicals did increase its output, however, up by 1.5% year on year.

Looking at 2019, VCI expects production in the chemical-pharmaceutical industry to increase by 1.5% “if there are no major” setbacks. Chemical prices are expected to rise by 1% and sales would improve by 2.5%.

VCI’s president ended with an emphatic defense of globalisation, which has allowed Germany’s chemicals to thrive, he said.

“The US increasingly relies on go-it-alone actions, threats and isolation. At the same time, there is the risk of the World Trade Organization (WTO) … breaking up due to the lacking willingness to reform of its members,” said Van Bylen.

“In Europe, we are also discussing the controversial withdrawal of the UK from the EU. Brexit is a threat to complex value chains in our home market Europe.”

The trade group said that “much is at stake” for chemicals when it comes to an orderly Brexit, arguing that German chemicals companies shipped to the UK goods worth €11.2bn  to the UK in 2017, or 5.8% of their global exports.

Around 17,000 workers are employed by German chemicals in the UK, who “manufacture products that often go to Germany” as part of imports worth €6.5bn.

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