German chems, pharma output drops 6% in 2022, prospects bleak – VCI

LONDON (ICIS)–Production for Germany’s chemicals and pharmaceuticals shrank 6% in 2022, industry body VCI said on Thursday, with every fourth company losing money amid the energy crisis.

The decline in the sector was even more dramatic for the chemicals sector alone, with productivity dropping 10% this year compared to 2021 and 15.5% for the petrochemicals industry, according to VCI.

Output is falling, with 40% of players stating that they have already cut production or expect to in the near future.

Sales in 2022 stood at €266.5bn, an increase of 17.5%, year on year, on the back of higher selling prices. More than 60% of sales – nearly €162bn – were exports.

“The situation is dramatic. Enormous energy prices and price increases for raw materials and inputs are making matters hard indeed for industry in our country,” said VCI’s president and Covestro CEO, Markus Steilemann.

GDP
The projected declines come despite evidence that the winter recession expected to hit the country this winter is likely to be milder than previously anticipated, according to economic research institute Ifo.

Germany’s 2023 GDP contraction is now expected to be 0.1%, compared with earlier projections of 0.3%, Ifo said this week, with average inflation forecast to stand at 6.4% in 2023, compared with 7.8% in 2022.

The institute also increased 2022 GDP growth expectations to 1.8%, from earlier estimates of 1.6%.

SECTOR PRICING
Chemical producer prices rose sharply through the year despite the drop in volumes, increasing around 22% compared with 2021 as producers moved to push higher costs, driven by energy pricing and inflation, down the value chain.

Despite the scale of the price hikes seen this year, they largely failed to keep pace with the extent of cost increases, VCI added.

Profitability dropped year on year for 80% of sector players compared to the strong net income increases across the industry in 2021, it added.

Supply chain issues persisted for around half of VCI member companies in November despite the economic slowdown in Europe easing pressure on logistics.

ENERGY
Germany’s energy bill subsidy framework, currently one of the most significant in Europe, fails to meet the needs of many players in the industry, according to the trade body.

“The implementation of the electricity and gas price brake diverges strongly from the Gas Commission’s proposal and is likely to bring very little or no relief for our companies,” Steilemann said.

Running from January 2023 until April 2024 and financed in part through windfall taxes on fossil fuel players,  the €99bn framework sets the upper ceiling of support too low for larger producers, and dictates that firms build up reserves unless earnings have fallen by over 40%, VCI said.

The group also criticised limits on bonuses and dividend payments set by the framework, as well as stipulations that companies making use of the support keep staffing levels at 90% of current workforce through to April 2025.

Obstacles for claiming support are “brutal”, Steilemann said, calling for the German government to renegotiate with the European Commission for an EU-wide energy price cap.

The European Parliament has so far failed to agree an EU-wide cap on energy costs, with Germany seen as an opponent to the measures.

“The federal government has failed to ensure the success of the energy price brakes at EU level,” Steilemann said.

“It is all the more important now to renegotiate in Brussels [the EU capital].”

Front page picture: Petrochemicals facilities at BASF’s Ludwigshafen flagship site in Germany
Source: Ronald Wittek/EPA-EFE/Shutterstock