EUROPE’S CHEMISTRY SHOWS LITTLE DYNAMICS

EU chemical production grows by 2% in the first half of 2019

  • The production of European chemical countries shows a growth differential of +18% in Belgium to -6% in Germany.

Despite a difficult global economic environment, the European economy got off to a good start in 2019. In almost all European economies, economic output rose at the beginning of the year, albeit at a slower pace. Increased by 1.5% from January to March compared to the previous year. Growth was particularly low in Germany and Italy. Oil prices increased again on the international commodity exchanges. This deprives Europe of purchasing power. There are also additional stress factors. Uncertainty is mainly caused by the protectionist trade and industrial policy of the USA as well as the back and forth in Br exit. But even the attitude of China is not conducive: The Middle Kingdom wants to penetrate even strong in foreign markets.

“Oil prices have risen again on the
international commodity exchanges, which
deprives Europe of purchasing power.”

Nevertheless, the outlook for Europe as a whole is good. This year, the German Chemical Industry Association (VCI) expects economic growth in the EU to slow slightly to 1.6% (Graph 1). Here the trade policy turbulence have a particularly strong impact. EU industrial production is expected to grow by only 1% this year. The uncertainty among market participants dampens investment. The production of capital goods is growing only slightly. The automobile production is languishing. The growth slowdown in the industry is being felt by the chemical companies. The chemical-pharmaceutical industry is likely to achieve an increase in production of 2.5% this year. If you exclude the pharmaceutical business,

“The production of European chemical countries
shows a growth differential of +18%
in Belgium to -6% in Germany.”

Chemical production hardly growing

Production in the European chemical and pharmaceutical industry was volatile last year. There was an intermediate high in the summer before the industry slashed production significantly in the fourth quarter. Nevertheless, growth of 1.9% was recorded for the full year 2018. However, the industry owed growth to the pharma business alone. By contrast, chemical production excluding pharmaceuticals had to cope with a slight decline. At the beginning of the year, the situation brightened up a bit. Compared to the previous three months, companies were able to increase production by 2% in the first quarter (chart 2). While orders from abroad grew again, European industrial customers were holding back on their chemical orders.

First figures for the second quarter indicate that the momentum remains low. According to recent estimates, EU chemical production increased by around 2% in the first half of 2019. However, there are clear differences in the individual categories of chemicals. The industry owes this growth exclusively to the production of inorganic raw materials and pharmaceutical products. While fine and specialty chemicals and consumer chemistry are stagnating, the production of petrochemicals and polymers has seen a significant decline year-on-year. For the chemicals business excluding pharmaceuticals, this will only stagnate in the first half of the year (chart 3).

Volatile chemicals prices

While pharmaceutical prices remained stable in 2018 as in previous years, the price of chemicals followed developments on the crude oil exchanges. In the course of the year, the price of chemicals initially rose sharply and then dropped significantly in the fourth quarter (chart 4). At the beginning of 2019, the price decline initially continued. It was not until March that the prices for chemicals rose again slightly. Weak demand on the one hand and only slightly rising raw material costs on the other hand narrowed companies’ pricing power. Producer prices for chemical and pharmaceutical products were down 1.3% in the first quarter of 2019 compared to the end of 2018. Chemicals were still 1% higher.
Although the price of crude oil rebounded in the course of the first quarter after the sharp slump at the end of 2018. However, inflation initially remained moderate. In total, one barrel of Brent crude oil cost an average of $ 63 in the first quarter, about 6% less than in the previous three months.

Big differences in growth in the EU countries

At the beginning of the year, the chemicals business was very different in the European economies. A look at the production of major European chemical countries shows a growth differential of +18% in Belgium to -6% in Germany. In Germany, a special effect on pharmaceuticals, the hesitant normalization following the low water levels on the Rhine and the weak automotive economy are putting pressure on the chemicals business, while Belgian basic chemicals are benefiting from the situation at the mouth of the Rhine. In the UK, the chemical industry grew strongly thanks to pharmaceuticals and aggro chemicals. In Poland, capacity building was noticeable in a significant increase. The remaining EU countries recorded mostly slight declines in production (chart 5).

Outlook: momentum remains low

Despite numerous economic risks, the start of the year was pleasing overall for the European chemical and pharmaceutical industries. The industry was able to expand production at the beginning of the year following the setbacks of previous months. However, this should not be seen as the beginning of an upturn, but is rather the normalization after the previous declines. Momentum remained low. Prices rose again slightly due to rising commodity prices.
For the coming months, the companies hope for an increasing demand. In the European economies, the buoyancy forces should prevail. But the industrial economy continues to lose momentum. Against this background, no major leaps are to be expected in the chemicals business. Thanks to the good pharmaceutical business, the VCI expects total production for the industry as a whole to rise by 2.5% in the chemical industry in 2019. Excluding the pharma business, the industry can only record a slight increase in production of 1%. However, setbacks can not be ruled out given the global economic risks.

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