German chemical industry mood brightens, worries continue: VCI

German chemical industry mood brightens, worries continue: VCI

VCI expects a drop in production of around 5% for 2023

  • By ICN Bureau | March 11, 2023

The chemical-pharmaceutical industry continued its downward slide in the fourth quarter of 2022. Production continued to collapse and capacities were not fully utilized. Falling demand from industrial customers and declining producer prices also led to a decline in domestic and foreign sales in the last quarter of the year.

“Production fell by 5% (in Q4 2022) compared to the previous quarter. Compared to the previous year, this corresponded to a minus of 14%. Capacity utilization in the industry fell again and was most recently at 76.5%,” industry association Verband der Chemischen Industrie (VCI) said in a press release.

In contrast, the view of the future has brightened somewhat in Germany's third-largest industrial sector. The significant fall in energy and raw material prices over the past few months has meanwhile stabilized the situation. The bottom seems to have been reached. However, the Chemical Industry Association is not expecting a strong recovery. In an international comparison, high energy costs, the lack of orders and location problems speak against it. The situation at the chemical and pharmaceutical site thus remains difficult.

According to VCI, production fell by 6.6% in 2022. “If you exclude the pharmaceutical business, the drop is even double-digit at 11.9%. The increase in sales of 16.6% is primarily due to price increases of almost 22%. High prices, in turn, meant that sales volumes fell by more than 5%. With energy and raw material costs rising rapidly at the same time, company profits ultimately shrank,” the association said.

VCI General Manager Wolfgang Große Entrup comments on the current situation: “The energy crisis has revealed it: Germany has an enormous location problem. Whether it's energy, infrastructure, skilled workers, digitization or an efficient, high-performing state: we think we're ahead, but we're now playing against relegation. Only a restart in terms of industrial policy will keep us in the top league in the race for the markets of the future. The following applies: less is more. Less regulation for more transformation. Our response to the US IRA should be an RRA – a Regulation Reduction Act.”

2023 remains difficult

The significant drop in energy and raw material prices over the past few months should stabilize the situation in the first quarter of 2023. This is also reflected in an increasingly confident business climate. But Große Entrup warns: "Even if the mood brightens, worries remain and, unlike in the pandemic or the global economic crisis, there will be no powerful recovery this time."

The following four factors speak against it:

  • Inflation will persist for several years.
  • The weakness of the global economy continues.
  • The energy crisis in Germany and Europe has not yet been resolved.
  • Germany has a massive location problem.

The VCI expects a drop in production of around 5 percent for 2023 as a whole. If you exclude the pharmaceutical business, production this year is likely to be 8 percent lower than in 2022. With declining prices, industry sales are expected to fall by a good 7 percent this year.

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