Twenty-five percent of German chemical companies are operating at a loss! In 2023, they will continue to face significant challenges, including a lack of orders, supply-chain disruptions, and persistently high energy costs.

Recently, the German Chemical Industry Association (VCI) stated at its annual press conference that 2022 was a bleak year and that the outlook for 2023 remains dim.

VCI President Markus Steilemann stated: “The situation is extremely severe. High energy prices and rising raw-material costs are putting the (German chemical and pharmaceutical) industry under significant pressure. In particular, our small and medium-sized enterprises are struggling to secure their future.”

One in every four companies is operating at a loss.

The substantial pressure from energy and raw-material costs has been accompanied by a sharp rise in product prices; in 2022, chemical-product prices in Germany increased by 22% compared with 2021. However, cost increases have outpaced price hikes, leading to profit declines for roughly 80% of VCI member companies, with one in four already operating at a loss. Small and medium-sized enterprises have been particularly hard hit.

In November, two-thirds of member companies reported losses due to insufficient orders. More than 25% even felt that their business operations had been severely impacted. For several months now, the German chemical and pharmaceutical industries have seen declining revenues. Nevertheless, Germany’s third-largest industrial sector is expected to post sales of €266.5 billion in 2022, up 17.5% from 2021. However, it is worth noting that this growth in sales has been driven by price increases, while volumes have been on the decline.

To avoid substantial losses and conserve energy—particularly natural gas—many companies have cut production. Forty percent of firms report that they have already done so or plan to take this step soon. Some production has already been shifted overseas, with nearly one in four companies either planning or having already carried out such relocations. Moreover, amid the energy crisis, one in five companies has been forced to turn down orders.

Chemical production declined by 10%.  

VCI reported that approximately 50% of its member companies cited supply issues in November. Shortages have emerged for materials such as pigments, carbon and glass fibers, hydrochloric acid, caustic soda, and industrial-grade carbon dioxide, and the list continues to grow, signaling disruptions throughout the primary value chain.

“Chemicals are present in nearly all everyday products. The industry’s economic difficulties will lead to supply shortages across various sectors of daily life,” Markus Steilemann emphasized, noting that the sector’s output declined by 6% compared with the previous year. Excluding the pharmaceutical business, the drop was even closer to 10%. The last time a similar situation occurred was in 2009, following the global financial crisis.

Despite rising costs, producer prices are under mounting pressure. In Germany’s chemical and pharmaceutical sectors, both orders and sales revenues are declining. Petrochemicals have been hit particularly hard, with total output expected to fall by 15.5% in 2022. Manufacturers of inorganic basic chemicals, polymers, and specialty chemicals have been forced to cut production by nearly 10%. Meanwhile, consumer‑oriented products such as soaps, detergents, and cleaning agents have declined by 1.5%. Only the pharmaceutical industry has shown improvement this year, with output increasing by 3%. In 2022, employment across the entire chemical and pharmaceutical sector remained steady at 475,500.

2023 Outlook: Conditions Have Not Improved

At present, with high uncertainty persisting, VCI does not expect conditions to improve in 2023. The energy crisis is pushing the German and broader European economies into recession. Markus Steilemann explained: “The industry’s profitability has deteriorated rapidly over the past year, and the outlook for 2023 is extremely bleak. The decline in German industrial production will accelerate further, while import pressures will continue to mount.”

Germany’s chemical and pharmaceutical industries will continue to face significant challenges next year, including a lack of orders, supply-chain disruptions, and soaring energy costs. The VCI forecasts that in 2023, industry-wide production will decline sharply once again, with sales likely to post negative growth as well.

Markus Steilemann concluded by emphasizing: “Without a strong, internationally competitive chemical industry, there can be no sustainable economy capable of withstanding the challenges of the future. The chemical industry is indispensable to our nation’s prosperity.”

Source: China Chemical Industry News