LONDON (ICIS)--While Europe's economy continues to expand, the slowdown in the manufacturing sectors is reducing demand for chemicals, with some analysts forecasting that long-term trends are only set to exacerbate this.
The 19-country eurozone is also suffering from a global slowdown in which Germany’s powerful export-oriented manufacturing sector has taken a hit: the US-China trade war has indirectly caused a slowdown for demand of German products, with the automobile sector being the main exponent of that.
Many chemicals produced in Europe – between 15% and 20% – have the automobile sector as its end customer: any slowdown in the industry is set to greatly affect chemicals and associated sectors.
ECONOMY UP, CAR SALES
Traditionally, car sales have been a good way to measure consumer confidence: people traditionally buy cars when the economy, employment and wages grow.
However, the sharp slowdown in the manufacturing sector in Europe in the last 12 months has not yet spilled over to the predominant services sector – on average, services account for 80% of European GDP.
While a global recession continues to be mooted by some analysts, the European economy is still holding up, reducing painful rates of unemployment – a legacy still of the 2008 financial crash – and increasing wages modestly.
This would be the key for the chemicals-intensive automobile sector. As consumers become more concerned about climate change, making sustainability part of their daily lives, demand for new cars is set to continue decreasing.
Analysts place the beginning of the end in the 'dieselgate scandal', when several automobile majors rigged their carbon dioxide (CO2) emissions testing systems.
Climate change – which chemicals companies always say represents for them an opportunity given the new materials needed to build a more circular economy – continues to be a major threat that many scientists are turning even more pessimistic about.
In a challenge that could significantly change the face of the earth in only 100 years, the fight against climate change should in theory involve a complete stop to the use of coal, the cheapest fossil fuel.
However, its use in 2018 increased globally as both developing and emerging economies – especially highly populated China and India – continue to burn millions of tonnes to produce the electricity that powers the supposedly cleaner electric vehicles (EVs) or the wide range of goods that make our daily lives possible.
Moreover, while China powers its EVs with dirty electricity, European manufacturers seem to be losing a race to become a key supplier for that type of vehicle.
The big German makers got into the sector late, and although they are pouring billions into research and development (R&D) now, they are behind US or Chinese competitors.
EVs are also a headache for the chemicals industry. A typical EV requires many fewer parts than a traditional combustion engine car, and that invariably will reduce demand for chemicals.
THINK BIG – REINVENT
These future trends all invariably point to lower chemicals demand. The EU’s publicised ‘circular economy’ would mean all materials are reused, making waste and reuse all part of the same circle.
While chemicals companies continue saying that they will be the providers of the new materials needed, the truth is that most of the products used in manufacturing today are linear, rather than circular – most of them need to be disposed of at some point, creating a waste problem.
Chemicals producers will have to reinvent themselves as recyclers, or processors of waste, but the old business model will not pass the test of sustainability as societies focus on the environment and climate change.
The head of the EU’s chemicals regulator ECHA said in an interview with ICIS earlier this year that the longer the switch to a circular economy took, the bigger of a problem to fix.
“The longer you postpone the transition, the more materials you accumulate in society, and the more of a problem you are leaving to your children to solve,” said Bjorn Hansen.
Pictured: BASF's sLudwigshafen, Germany, verbund chemicals complex (source: BASF)
Focus article by Jonathan Lopez