Issue Date: July 14, 2008
German Chemicals Buck Downturn
ULRICH LEHNER, president of the German Chemical Industry Association, or VCI (its German acronym), had a satisfying report to give at the association's recent semiannual press conference in Frankfurt: From a particularly strong 2007, "the upward trend in the German chemical industry continued in the first half of 2008, irrespective of the difficult environment," he said.
However, growth was less dynamic than during the same period last year, he conceded. "The turbulences of the global economy have reached the chemical industry, too." As a result, "growth has clearly slowed down in major customer industries of chemistry," said Lehner, who is acutely aware of the trend as he is also chairman of Henkel, a consumer products giant and a major chemical buyer.
Nonetheless, the industry's performance is nothing to sneeze at. In the first half, German chemical output rose 3.0% over the first six months of the previous year. The first half of 2007, in comparison, showed precisely twice that rate of growth.
The performance picture varied over the range of sectors in the industry.
For example, in the first half of 2008, growth for basic chemicals was just under 2.0%. Within that sector, the output of inorganic basic chemicals rose by 1.0%, while production of petrochemicals was up by 2.5%. Polymer output increased by 1.5%.
Trends were less favorable for fine and specialty chemicals and for consumer-related chemicals, Lehner observed. Production of specialty chemicals was up just 0.5% over the previous year. And producers of detergents and personal care products saw only 1.0% growth, a reflection of what he termed "the reserved behavior of consumers."
The German chemical industry's strongest sector, Lehner reported, was pharmaceuticals. Although growth rates were no longer in the double-digit range of last year's first half, the pharmaceutical sector's 7.5% growth was the highest within the chemical industry. Moreover, it portended a result for all of 2008 that runs contrary to the leveling off of growth in the pharmaceuticals sector forecast by the European Chemical Industry Council. CEFIC economists predict that European-wide production of pharmaceuticals will be up only 3.5% for the year, the same rate seen in 2007.
The industry's good performance is due in part to the cushioning effect that the strong euro has had on the significant increases in the cost of oil, which is priced in dollars. Raw material costs did rise, however, and not all of them could be passed along as price increases, Lehner said; in fact, in the first half, prices on average were only 3.5% higher than in first-half 2007.
Nonetheless, that extra pricing helped boost German chemical industry sales by 5.5%, to roughly $133 billion. And despite the strong euro, total exports for the first half soared by 11.5% to just over $100 billion. Meanwhile, chemical imports, at slightly more than $70 billion, were up 6.0% over first-half-2007 levels.
"OUR TRADITIONAL strength was and is the export business," Lehner said. "The lion's share of our exports has always been going to customers in Western European countries. But over the last few years, a further market has been gaining enormously in importance for our export activities, namely Central and Eastern Europe."
The German chemical industry has benefited to a particularly high degree, Lehner noted, from direct proximity to the new European Union member states. "The vigorously growing industries in Central and Eastern Europe developed such a strong demand for chemical products that this demand could be no longer fully covered by local chemical production," he observed. The result: In 2007, Germany exported chemicals worth $24 billion to that region—more than 12% of the country's total chemical exports. The trend has continued into the first half of this year.
Given the favorable development of the first half, Lehner said, VCI is forecasting investment by the German chemical industry to increase by 5% to top $10 billion for the entire year. That figure includes streamlining and modernization investments, as well as capacity expansions such as those at Lanxess' ion-exchange operations in Bitterfeld and Leverkusen.
Growth will flatten more noticeably in the second half of the year, Lehner predicted, on the basis of VCI economists' reports. "We think that the impacts of extremely high raw material and oil prices, the strong euro, and the less favorable economic situation in the U.S. will make themselves felt more heavily in the German chemical industry in the months to come."
However, he concluded, "we believe that the industry will not experience a slump. The demand for chemicals will remain more or less stable." In contrast with the 1.9% growth in production that CEFIC is predicting for the EU chemical industry in 2008, VCI is forecasting full-year German chemical output growth of 2.5%.
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