According to the results of the EU business and consumer survey (July 2023), the confidence of the chemicals industry weakened for the fourth consecutive month. This is due to a significant deterioration in the managers’ production expectations, which showed a decrease in July 2023 compared to June 2023.

The managers’ assessments of the current level of overall order books were slightly better in July 2023 compared to the previous month, but are still far below the 2021 pre-crisis levels. While stocks of finished products declined slightly in July 2023, they are anyway assessed as too large/above normal. Currently, the business situation remains stable but it is not satisfactory as the chemicals business climate continues to show persistent issues. Despite the significant decline of the energy prices recorded over the past 12 months (July 22-July 23), the sector is still suffering from lack of demand (source: EU business and consumer survey, July 2023)

European gas prices lower than in 2022, but still 4.3 times more expensive than in the USA

Data shows a deep decline in gas prices since August 2022. In 2023 (Jan-July), natural gas prices in Europe amounted to 40.4 (EUR/MWh) in nominal terms, which is 66% below 2022 level (119.7 EUR/MWh). The chemical industry depends on competitive electricity prices. Even though the electricity costs have fallen, they are still above the pre-crisis level. Moreover, gas prices in Europe are still on average 4.3 times higher than the ones paid in the US. According to the latest VCIsurvey, almost 90% of German companies rate the energy costs as bad or very bad in an international comparison. Confidence in Germany as a business location is fading (source: VCI Press Release, 21 July 2023)

EU27 chemicals production in H1-2023 was 12.3% down compared to H1-2022

In Q2-2023, production of the chemical industry remained stable at the same level recorded in Q4-2022. It is also approaching similar levels as seen in the first Covid lockdown in 2020 (Q2-2020). EU27 Chemicals production in the first six months of 2023 was 12.3% lower compared to the same period of 2022. The results of this first half of the year are disappointing for most countries, as the spillover effect of the 2022 energy crisis are severely impacting most business sectors in 2023.

The Netherlands and Germany were amongst the EU countries most impacted by the energy crisis, and they are now both recording a production decline of over 15%.

Looking at specific sectors of the chemicals business, basic chemicals sectors continued to see a double-digit decline. H1-2023 output of inorganic basic chemicals was roughly 14% lower in comparison to the same period of the previous year. A marked downturn was recorded for petrochemicals and polymers as well. The drop in the production of specialty chemicals was comparatively moderate.

EU27 chemical selling prices were 10% lower than in June 2022

In the first half of 2023, the EU27 chemical selling prices reached the same level of H1-2022, but June 2023 recorded a drop. In June 2023, EU27 chemical selling prices were 10% lower than the ones from June 2022. Basic chemicals sectors continued to see selling prices declines in the double-digit range.

The European chemical industry is losing competitiveness on global chemical markets

The European chemical industry started very weak into 2023: both domestic and export demand remained very weak, therefore in the first six months of 2023 production declined sharply in comparison to the previous year. Chemicals output declined by -12.3%, whereas other manufacturing sectors continued to grow (+0.5%). Sectors such as electrical equipment (+5.4%), pharmaceuticals (+11.6%) and automotive (18.7%) have contributed to limit the effects of the energy crisis on the EU27 manufacturing sector as a whole. The European chemical industry is losing competitiveness on global chemical markets due to high regional energy and feedstock costs. In 2023, exports and imports are declining significantly (in volume terms). This clearly points out the increasing pressure on the European chemical sector amid intense competition on global chemical markets in times of weak global demand and low-capacity utilization.

High price pressure and weak demand contributed to poor chemicals sales

The EU27 chemicals sales decline in 2023 (-12.7%) comes with a persistently difficult earnings situation for companies. Capacity utilisation level in the chemical industry declined significantly, and in Q2-2023 itstood around only 74%. The capacity utilisation level is approaching similar levels as seen in the first Covid lockdown in 2020. The weak level of capacity utilisation is mainly driven by energy costs and lack of demand. At €285 bn, sales in the chemicals industry for the first five months of 2023 are far below the levels recorded during the same period last year. According to a survey among the VCI membership, almost two thirds of German companies reported falling profits or even losses in 2023. (Source: VCI press Release, 21 July 2023)

The recovery is likely to be slow and sluggish

The significant drop in energy and raw materials prices was expected to provide short relief at the beginning of 2023. That did not happen. Hopes for a recovery after the mild winter and with much lower gas and electricity prices have not materialised. In contrast, the demand for chemicals is still on the decline. The recovery will probably be slow and sluggish. According to Oxford Economics Report (July 2023), the second half of 2023 is expected to be tough for chemical firms, as weak industrial demand will continue to weigh on new orders. Elevated interest rates, tighter lending conditions and persistent inflationary pressures will continue to weigh on goods producing industries that chemical firms sell to. In view of the weak business situation of industry generally, the output of chemicals is expected to decline significantly in the year 2023. With falling prices overall, the industry’s sales are likely to go down markedly. Weak global demand from key downstream sectors and persistently high energy costs will continue to weigh on the sectors prospects into 2024. European gas prices have eased significantly but remain 70% above their average 2015-19 level (source: Oxford Economics Monthly Industry Briefing/Global Industry-July 2023