LONDON (ICIS)--Weakened European chemicals and wider industrial companies are at risk of takeovers by overseas players after the coronavirus pandemic, including “state-subsidised” investments, the director general at trade group Cefic told ICIS on Monday.
The European chemicals sector, like all major industries, will come out of the pandemic in a weakened position compared with other global players like China, set for economic recovery sooner.
Shares in all major European chemicals companies fell sharply in March as the region became the pandemic’s epicentre; they have become cheaper assets.
Chemicals prices also fell sharply during the month, taking a hit from both the pandemic and the sharp fall in crude oil prices.
Cefic’s director general Marco Mensink did not mention specifically Chinese investments, but said state-subsidised foreign direct investments (FID) is a concern. Among the major economies, China is the state which still owns majority stakes in large industrial players.
Within Europe’s chemicals, its largest move to date was the acquisition of Swiss agrochemicals major Syngenta in 2017 for $43bn, but China holds smaller stakes in several logistics and industrial players across the region.
The severe coronavirus-induced economic downturn prompted the European trade group AEGIS, composed of more than 20 manufacturing associations – Cefic is not part of it, Fertilizers Europe is – to demand from the European Commission, the EU’s executive branch, a more interventionist approach to industry.
Mensink said on Monday: “All of Europe’s major industries are facing this risk [of takeover by overseas players], and especially as different regions around the world will start recovering from the crisis at different times.
“State-subsidised foreign direct investments (FDI) could grow significantly and a possible competitive race unfold, with export credits being given by some countries.”
While Chinese authorities are portraying a slow return to normality, many European countries are yet to hit the pandemic peak, and the region’s projections for GDP growth in the first half of 2020 are bleak – a recession is now widely taken for granted.
Countries hard hit by the pandemic like Italy and Spain are expected to post double-digit falls in GDP in the first half of 2020, according to some analysts.
Under EU rules, state intervention is ruled out in most cases, but several industries – the steel sector being the most notorious – have always demanded more intervention as their global market share continued diminishing due to cheaper production overseas.
Cefic, however, said “free and open” trade remains paramount for a healthy chemicals industry, but with “regulatory alignment”. The EU’s chemicals industry is the most-heavily regulated in the world, under the Reach system.
“We continue to maintain that no products should enter the European markets that do not comply with EU rules. It is not about looking inwards and becoming more protectionist. We will need free trade and global value chains, more than ever before, to kick-start economic recovery after the crisis,” said Mensink.
“The pandemic has also clearly demonstrated the importance of bringing key value chains and industrial ecosystems back to Europe. One of the most obvious examples is the manufacturing of active pharmaceutical ingredients (API) for medicines.”
Mensink said the Commission is set to “take important steps” to protect the EU’s critical assets during the pandemic, mentioning the executive’s decision to issue new guidelines on FID advising the 27 member countries to use their investment screening mechanisms to identify and address FID cases that could create a risk to critical infrastructure and supply chains.
Cefic’s director general said the trade group did not yet have figures showing the extent of the coronavirus-induced downturn in the chemicals industry.
The sector is now focused, he added, on ensuring supplies of critical products to tackle the pandemic by working with EU governments to “make sure these substances” can move swiftly across the bloc and avoid shortages.
“For example, ingredients for disinfectants, active pharmaceutical ingredients for medicines, polypropylene [PP] fibres for mouth masks, or wastewater treatment products for clean drinking water,” said Mensink.
“We are very proud to be part of this industry today.”
Front page picture: Chemical park in Marl,
Source: Hans Blossey/imageBROKER/Shutterstock
Focus article by Jonathan Lopez