VCI: Procurement market to feel impact of Russia-Ukraine conflict

Frankfurt, Germany – The German chemical industry association VCI expects the procurement market for chemical and pharmaceutical industries to be impacted by the Ukraine-Russia conflict.

In an analysis published 1 March, the association said the Russian procurement market will likely look more important than the sales market for the German chemicals industry.

“As a supplier of energy raw materials and metals, Russia plays a much greater role for Germany than as a sales market,” said the analysis.

According to VCI, 55% of Germany's natural gas supplies and 42% of crude oil imports come from Russia.

Russia is also an important supplier of coal, steel, aluminium, nickel and other metals.

“A loss of supplies is likely to further exacerbate the situation in the supply chains in view of the already existing material shortages,” it said.

In particular, the materials supply disruption is likely to impact industrial production and to increase costs and producer prices in industry.

“How strong these effects will be is currently still unknown. The impact on inflation, consumption and investment is also uncertain,” it added.

In terms of sales to the war-hit region, VCI said Russia, Ukraine and Belarus play a rather modest role for the German chemical and pharmaceutical industry.

Last year, 3% of German chemical and pharmaceutical products were exported to the three countries, with a total value of €7 billion.

This, VCI said, is because Russia ‘lost its weight’ as a sales market following the annexation of Crimea in 2014 and the ensuing sanctions.

In terms of direct investment, Russia and Ukraine together account for €2.2 billion, corresponding to 2% of the industry's total direct investments abroad.

In 2019, companies in the German chemical and pharmaceutical industry had around 68 subsidiaries with 15,000 employees at Russian and Ukrainian locations.

They generated a turnover of almost €5 billion from the locations.