Weak demand, high energy costs and the sluggish economy are making things difficult for the German chemical industry. The German Chemical Industry Association (VCI) lowered its forecast for the current year significantly in Frankfurt. He now expects production in the chemical and pharmaceutical industries to shrink sharply by eight percent compared to the previous year.
Chemical production alone is likely to decline by eleven percent. Industry sales could fall by 14 percent.
“The hopes that a recovery would set in after a mild winter and significantly lower gas and electricity prices have not been fulfilled,” said VCI President Markus Steilemann. On the contrary, the demand for chemicals is falling. So far, the VCI had expected a minus of five percent in production and seven percent in sales for the important industrial sector, which employs around 477,000 people in Germany.
Chemical prices under pressure due to fierce competition
A recovery for the chemical industry is not to be expected in the second half of the year, said Steilemann. Industrial customers are holding back and sales markets are disappearing – for example in the construction industry. In addition, chemical prices are under pressure due to fierce competition.
The chemical industry in particular is dependent on the economy as a supplier to the automotive, consumer goods and construction industries, for example, while the pharmaceutical industry is considered to be robust in the face of economic fluctuations. According to the VCI, production in the chemical and pharmaceutical industry fell by 10.5 percent compared to the previous year and sales by 11.5 percent to 114 billion euros in the first half of the year. Above all, business in the home market of Germany was poor.
Criticism of difficult site conditions
The chemical industry has been suffering from a reduction in customer inventories since autumn 2022. Due to a weak second quarter, a number of chemical companies have already made significant cuts in their annual targets. These include BASF, Lanxess, Clariant and Evonik. Corporations like BASF have announced that they will invest more abroad – for example in China – because of the high production costs in Germany.
The chemical industry, which is hungry for electricity and gas, is particularly affected by high energy prices. Even if electricity costs have fallen, they are still above the pre-crisis level, said Steilemann. He again campaigned for a state-subsidized industrial electricity price that would serve as a bridge for the industry until enough renewable electricity was available – around the early 2030s.
Advisors to the federal government are critical of the industrial electricity price for energy-intensive companies proposed by Economics Minister Robert Habeck (Greens) – also with a view to the tight state budget. The aid would cost up to 30 billion euros.
Steilemann criticized difficult site conditions. A “cluster risk” from high energy prices and taxes, poor infrastructure, shortage of skilled workers, digitization backlog and too much bureaucracy robs industry companies of their confidence. “Belief in Germany as a location is waning.” The federal government must act “so that Germany does not become a candidate for relegation”.
