Germany chems production drops 24% in Q4 – VCI

LONDON (ICIS)–Germany chemicals production excluding the pharmaceuticals sector fell 23.6% year on year and 11.6% quarter on quarter in October-December 2022 amid falling demand and capacity utilisation, trade group VCI said on Thursday.

Including the pharmaceutical industry, production dropped 14% year and year and 5% quarter on quarter, VCI added. Full-year production dropped 11.9% in 2022 excluding the pharmaceuticals sector, alongside a 21.7% increase in pricing.

The fourth-quarter decline was accompanied by the first period of price drops in 2022, with values falling 0.3% compared to the same period a year earlier.

Sales dropped 3.7% in the closing three months of last year to €59.2bn, driven by a nearly 5% drop in exports and a more modest decline in domestic demand, VCI said.

The decline in sales during the quarter resulted in a fall in average capacity utilisation, from 79.3% to 76.5%.

Since the close of the year, conditions have stabilised to an extent as a result of moderating energy and raw materials pricing, meaning the German economy may have bottomed out, according to VCI director general Wolfgang Grosse-Entrup.

The ease in headwinds is not expected to be sufficient to drive a return to growth for the sector, the group added, projecting a drop in production of 5% and a decline in sales of 7% for the industry including pharmaceuticals for 2023.

Germany ‘s industrial sector continues to be limited by energy pricing and access to skilled labour, Grosse-Entrup added, with a cut in the regulatory pressures necessary to compete with the US Inflation Reduction Act stimulus package.

“The following applies in this effort: less is more. Less regulation for more transformation. Our response to the US IRA should be an RRA – a regulation reduction act,” Grosse-Entrup said.

The industry outlook brightened slightly in February, according to economics group ifo, rising to minus 18.5 points in its business survey from 25.6 points in January, remaining in negative territory overall.

Weak demand and declining order book backlogs mean that fewer price increases are expected during the month, which could stand to further strain company earnings, according to ifo’s Anna Wolf.

“Fewer chemical companies are planning to raise their prices. While this may boost demand, it puts even more strain on their already tense earnings if they don’t pass on their production costs to their customers in full,” she said.

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