The outlook for the German chemical industry in 2023 is bleak

At the end of the year and the beginning of the year, the employees of the German chemical industry were worried
.
In 2022, the German chemical industry suffered a strong impact
from high energy prices.
Entering 2023, as the Russian-Ukrainian conflict is still not over, the huge pressure on energy and raw material costs is still difficult to eliminate
.
At the annual press conference held by the German Chemical Industry Association (VCI) recently, VCI Chairman Steilemann said that 2022 is a dark year for the German chemical industry, and the outlook for 2023 is still bleak
.

2022 is dark

Looking at the performance of the entire German economic sector in 2022, the chemical industry is not the most painful sector
.
Throughout the year, the German chemical industry has been hit by the high cost of energy and raw materials, but has benefited
more or less from inflation.
According to VCI statistics, in 2022, the price of chemicals in Germany increased by 22%
compared to 2021.

However, in the second half of 2022, due to the skyrocketing prices of oil and gas and electricity, the cost of the German chemical industry rose more sharply than the increase in selling prices, resulting in a decline in the annual profit of about 80% of VCI member companies, and 1/4 of the companies lost money, especially small and medium-sized enterprises
.
At the same time, the recession caused a cut
in downstream orders.
VCI said that in November 2022, two-thirds of its member companies suffered losses due to insufficient orders, and more than 25% felt that their business activities were severely affected
.
In the last months of 2022, turnover in the German chemical and pharmaceutical industry has been declining
.
VCI said full-year 2022 sales are expected to reach €266.
5 billion, 17.
5%
higher than in 2021, while chemical prices rose by 22 percent.

Energy shortages also bring supply problems
.
To avoid major losses and save energy, 40 percent of German companies have cut production and moved part of their production abroad
.
In addition, due to the energy crisis, 1/5 of the companies had to decline orders
.
VCI said that about 50% of member companies reported supply problems in November 2022, with shortages in industries such as pigments, carbon and glass fibers, hydrochloric acid, caustic soda, and industrial carbon dioxide
.

By industry, petrochemicals were particularly hard hit, with total production falling by 15.
5%
in 2022.
Manufacturers of inorganic basic chemicals, polymers and specialty chemicals cut production by nearly 10 percent
.
Soaps, detergents and cleaners, which are closely related to consumers, fell by 1.
5%.

Only the pharmaceutical industry improved, with production increasing by 3%.

There may be no improvement in 2023

At present, VCI has not expected the situation of the German chemical industry to improve in 2023 due to
the persistence of highly uncertain factors.
VCI expects that the output of the entire industry will further decline sharply in 2023, and sales are likely to show negative growth
.
"The profitability of the industry as a whole has deteriorated rapidly over the past year, the decline in German industrial production will accelerate further in 2023, and import pressure will continue to increase
," Steilemann said.
”

VCI said that domestic business in Germany will decline significantly due to the decline in German industry, but the agency could not give any quantitative forecasts
.
Steilemann said: "The situation in 2023 is still very serious
.
Rising prices for energy and raw materials will make the German chemical industry difficult
.
”

German economic research institute Ifo also said that although there is evidence that the recession of the German economy in the winter of 2022 may be milder than previously expected, economic data in the fourth quarter of that year is expected to still decline and affect the economic trend
in 2023.
Ifo said Germany's gross domestic product (GDP) is expected to slip by 0.
1% in 2023, compared with a previous forecast of a 0.
3% decline; Average inflation is expected to be 6.
4% in 2023, compared to 7.
8%
in 2022.

Pay attention to the braking mechanism of energy prices

Steilemann said the German chemical industry was disappointed
that the federal government failed to ensure that previously announced brakes on energy prices came into force at the EU level.

"The braking mechanism for electricity and gas prices that will be officially launched is very different from the recommendations of the Gas Commission and may not do much to bail out our companies, especially small and medium-sized chemical companies
," Steilemann said.
”

The EU energy price brake, which Steilemann mentioned, is a resolution
adopted by the EU on December 19, 2022.
According to the announcement issued by the Council of the European Union on the same day, if the price of natural gas futures from the Dutch Ownership Transfer Center (TTF), which is regarded as the benchmark price of European natural gas, exceeds 180 euros per MWh for 3 consecutive working days, and the TTF natural gas price is 35 euros higher than the LNG market reference price during these three working days, the price intervention will be automatically triggered, and natural gas futures transactions that are 35 euros higher than the LNG market reference price will not be accepted
.
In November 2022, when the mechanism was first proposed, the EU proposed a price ceiling of 275 euros
per MWh.
At the same time, the Regulation also introduces a braking mechanism for the Regulation itself, that is, if it endangers the security of natural gas supply, causes financial market turmoil, affects existing contracts, disrupts the internal market, etc.
, the European Commission can stop price intervention
at any time.
However, VCI is concerned that the lack of support measures for small and medium-sized chemical enterprises in the mechanism will exacerbate the plight
of these enterprises.

Recently, due to the warm winter in Europe, natural gas stocks remained high, and European natural gas prices plummeted
again.
However, the German chemical industry remains concerned that there is still uncertainty about German and European energy policies and transitions, and that the European energy crisis may not end
quickly.
German politicians expect high energy prices to become the
new normal in the future.