EPCA ’22: Europe chemicals orders size shrinks as price concerns grow – Brenntag exec

BERLIN (ICIS)–Customers in Europe are placing smaller chemicals orders as they try to navigate a more uncertain outlook for prices, an executive at Germany’s chemicals distributor Brenntag said this week.

David O’Connell, senior vice president for global  sourcing and supply at Brenntag, added that while demand from sectors such food or pharmaceuticals remains good, the outlook for coatings or construction has deteriorated in past months.

“We are clearly mindful of the fact that there are a lot of clouds on the horizon regarding demand,” he said.

Supply chain issues, which caused global freight costs to rocket in 2021 and the first part of 2022, are normalising, the executive added, with more imports from Asia to Europe taking place, which is putting pressure on European chemicals prices as lower priced product enters the region.

O’Connell added that Brenntag is maintaining its earnings forecast for 2022 unchanged, however, as the company’s wide range of customers allows it to partially offset lower demand in some sectors with those where demand remains healthy.

O’Connell spoke to ICIS on the sidelines of the European Petrochemicals Association (EPCA) annual meeting.

UNCERTAINTY LEADS TO SMALLER ORDERS
“One pattern that we see is that order sizes are smaller, so we are doing more orders, that’s a feature of our business right now. Customers are concerned about the price outlook and about what prices are going up or down,” said O’Connell.

“On the other hand, for the prices that are going up, there is a big cash component, which means using a lot of working capital. For products for which prices are falling due to low demand, customers will wait to see what happens to pricing to go forward.”

However, O’Connell said Brenntag’s demand continues to be healthy overall; conditions in the Americas remain good, he said, although the company’s domestic market in Europe is showing signs of a clear slowdown as energy prices and geopolitical uncertainty bite.

He added that in Europe there is a “combination of challenges” regarding demand and supply chain issues.

“Overall, demand remains good but there are some segments such as coatings or construction where we are seeing a decline in demand. We have achieved strong results in the first half of 2022 and the company is keeping its forecasts for 2022 earnings unchanged.”

“We still see good demand in sectors such as food and pharmaceuticals – Brenntag’s advantage is our wide customer base, allowing the stronger customer segments to partially compensate for those which are not doing as well.”

In an outlook shared by many chemical products in Europe, the improvement in supply chains has also brought with it more deliveries of Asian product to Europe, with Asian sellers being more active in Europe.

This, in turn, is putting pressure on European sellers as they must compete with cheaper product from their Asian counterparts.

Regarding prices for chemicals in Europe, O’Connell said there are two parallel situations at present.

“In some instances, prices are very strongly driven by energy costs, but there are a lot of questions now about what will happen with governments energy policy in the EU,” said O’Connell.

“In some other areas, prices are under pressure as demand has fallen. We can only follow what politicians are discussing and deciding, but if the war keeps running in Ukraine and there is no geopolitical settlement, the situation is going to be with us for at least some of next year.”

The EPCA annual meeting runs on 4-6 October in Berlin.

Interview article by Jonathan Lopez