Germany’s chemicals outlook worse for Q2 – VCI trade group

Stefan Baumgarten

25-May-2022

LONDON (ICIS)–German chemical producers’ trade group VCI keeps withholding a full-year 2022 outlook but one thing is clear: the current Q2 will be worse than Q1 – that is, things will get worse before they get better, economists said in a VCI webinar.

Shortly after Russia began its attack on Ukraine on 24 February, VCI pulled its full-year 2022 outlook. That outlook was for production to rise 2% and sales to rise 5%.

With the current “maximal uncertainty” and fears that Russian natural gas supplies may end any day, VCI will not reinstate a full-year outlook at this time, the group’s chief economist, Henrik Meincke, said in VCI’s Q1 webinar on Tuesday.

In the short-term, however, it is clear that with declining industrial production, underlying chemical output (chemicals excluding pharma) in Q2 will continue to fall from Q1 – when it already fell 1.1% quarter on quarter and 1.6% year on year, he said.

Germany’s chemical production, Q1 2022:

Change from Q4 2021 Change from Q1 2021
Inorganic basic chemicals 6.0% 2.2%
Petrochemicals and derivatives -4.3% -1.3%
Polymers -0.9% 6.1%
Fine and specialty chemicals -2.0% -8.1%
Detergents and soap 2.3% 0.8%
Pharmaceuticals 6.4% 12.3%
Chemicals excluding pharma -1.1% -1.6%

(source: VCI)

The ongoing raw material shortages and high prices, along with very high energy costs, keep squeezing chemical producer margins, he said.

While chemical producers try to pass on the higher energy and material costs to customers, it is often not possible to pass on the full increase, he said.

Also weighing on the industry are China’s strict coronavirus lockdowns, which affect global supply chains and slow that country’s economic performance.

Nevertheless, Meincke expressed the hope that the expected decline from Q1 to Q2 will still be “in an acceptable range” – unless there is a sudden end to Russian gas deliveries.

GAS THREAT SPEEDS UP STRUCTURAL CHANGE
Axel Angermann, chief economist at investment firm FERI Trust GmbH, added that the biggest near-term challenge facing the industry was an embargo on Russian energy, in particular natural gas.

The resulting spike in energy prices would “with certainty” trigger a recession, not only in Germany, but also in many other European countries, he said.

Even before the war, Germany’s energy-intensive sectors, such as chemicals, were undergoing structural changes and struggling to stay competitive, he said.

A sudden Russian gas stop would mean that those changes are compressed into a single point in time, forcing customers to quickly turn to lower-cost suppliers in the US or elsewhere to buy chemicals.

“The big worry” is that once customers have made that change, they will not return, even if gas supplies should resume later, he said.

INDUSTRIAL POLICY
As a potential positive, Meincke noted that the combined impacts from the Ukraine war, the coronavirus pandemic and the supply chain problems have underlined the importance of the chemical industry for Germany’s economy.

This, in turn, has created support for industrial policies that enable the investments needed for the transformation of the industry towards decarbonisation – a transformation that was planned before, but would now need to accelerate, he said.

Please also visit ICIS Ukraine topic page

Front page image: German flags outside the Reichstag building, seat of the German Parliament, in Berlin. Source: Shutterstock

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