Recently, the German Chemical Industry Association (VCI) stated at its annual press conference that 2022 is a dark year and the outlook for 2023 remains bleak.
VCI Chairman Markus Steilemann said: "The situation is very serious. High energy prices, as well as rising raw material prices make it difficult for the (German chemical and pharmaceutical) industry. Especially our small and medium-sized enterprises are fighting for their future."
1 in 4 companies lose money
The intense pressure on energy and raw material costs is accompanied by a strong increase in product prices, with chemical product prices in Germany rising by 22% in 2022 compared to 2021. However, the increase in costs is more dramatic than the increase in sales prices, which has led to a decline in the profits of about 80% of VCI member companies, and a quarter of the companies are already losing money, especially for small and medium-sized enterprises.
In November, two-thirds of member companies suffered losses due to insufficient orders. More than 25% of enterprises even think that their business activities have been seriously affected. Turnover in the German chemical and pharmaceutical industry has been declining for several months. Despite this, the sales of Germany's third largest industry are expected to reach 266.5 billion euros in 2022, which is 17.5% higher than in 2021. But it's worth noting that sales growth was driven by price, while volumes were trending down.
To avoid major losses and to conserve energy, especially natural gas, many companies have cut production. 40% of businesses said they had already done so, or planned to take this step soon. Some production has already been moved abroad, with almost one in every four companies specifically planning or already implementing a relocation. Furthermore, one in five companies had to reject orders due to the energy crisis.
Chemical output down 10%
About 50 percent of member businesses reported supply problems in November, the VCI said. For example, there are shortages of pigments, carbon and glass fibers, hydrochloric acid, caustic soda, industrial carbon dioxide, etc., the list is getting longer and longer, and the first value chain is being broken.
"Chemicals are present in almost everything we use on a daily basis. The industry's economic difficulties will lead to supply shortages in all areas of life." Markus Steilemann emphasized that the industry's output fell by 6 percent compared to the previous year. If the pharmaceutical business is excluded, the decline is even around 10%. The last time something like this happened was in 2009, after the global economic crisis.
Despite rising costs, producer prices are coming under increasing pressure. Orders and sales revenues in the German chemical and pharmaceutical industries are down. Petrochemicals will be hit particularly hard, with total production falling by 15.5% in 2022. Manufacturers of basic inorganic chemicals, polymers and specialty chemicals had to cut output by almost 10%. Soaps, detergents and cleaners, which are closely associated with consumers, fell 1.5%. Only the pharmaceutical sector has improved this year, with production up 3%. Employment in the entire chemical and pharmaceutical industry remains stable at 475,500 in 2022.
Outlook 2023: The situation is not improving
Currently, the VCI does not expect the situation to improve in 2023 as high levels of uncertainty persist. The energy crisis is forcing the German and European economies into recession. Markus Steilemann explained: "The profitability situation for the entire industry has deteriorated rapidly over the past year, and the signs for 2023 are abysmal. The decline in German industrial production will accelerate further and import pressures will continue to increase."
The German chemical and pharmaceutical industry will still face enormous challenges next year: lack of orders, supply chain disruptions and high energy costs. VCI predicts that in 2023, the output of the entire industry will further decline significantly, and sales will likely experience negative growth.
Markus Steilemann concluded by emphasizing: "Without a strong, internationally competitive chemical industry, there can be no future-proof, sustainable economy. The chemical industry is irreplaceable for the prosperity of our country."
Source: China Chemical Industry News
