Mood starts to lift but challenging year ahead for German chemicals industry

Frankfurt, Germany – The German chemical-pharmaceutical industry is expected to continue its downtrend over the course of 2023, with production set to decline 5%.

Excluding pharmaceuticals, the drop in production is likely to reach 8% year-on-year, said the German Chemical Industry Association (VCI) in its quarterly report 9 March.

With declining prices, industry sales are expected to fall by “a good 7%” compared to 2022, VCI added.

While “the mood brightens” due to the significant drop in energy and raw material prices, VCI general manager Wolfgang Große Entrup said ‘worries remained’ for the industry.

“Unlike in the pandemic or the global economic crisis, there will be no powerful recovery this time," he added.

In the final quarter of 2022, the German industry continued its downward slide, registering a 5% quarter-on-quarter decline in production.

Compared to the year before, the output decreased 14%, while capacity utilisation fell further to 76.5%.

Producer prices fell for the first time since the second quarter of 2020, registering a decline of 0.3% compared to the previous quarter but still 18% higher than the year before.

“Declining demand, severe production cutbacks and declining producer prices also led to a decline in sales in the last quarter of the year,” according to VCI.

Total sales in the chemical and pharmaceutical industry fell by a seasonally adjusted 3.7% to a total of €59.2 billion euros.

Over the course of 2022 , production fell by 6.6% for both chemicals and pharmaceuticals.

Pharmaceuticals excluded, the drop was just under 12%, VCI said.

Overall sales in 2022 rose 16.6% primarily reflecting price increases of 22%.

With high prices, volumes fell by more than 5% and company profits “ultimately shrank” due to the rising energy and raw material costs.

Despite the declines, the outlook has “brightened somewhat” in Germany's third-largest industrial sector, VCI said.

The lifting of the mood has been linked to the significant fall in energy and raw material prices over the recent months, which helped stabilise the situation.

“The bottom seems to have been reached. However, the chemical industry association is not expecting a strong recovery,” VCI said.

This is due mainly to high energy costs, lack of orders and “location problems”, compared to international levels.

Commenting on the situation, Große Entrup said the energy crisis revealed that Germany has “an enormous location problem.”

“Whether it's energy, infrastructure, skilled workers, digitisation or an efficient, high-performing state: we think we're ahead, but we're now playing against relegation,” he said.

The industry official stated that a “restart” in terms of industrial policy will keep Germany in “the top league” in the race for the markets of the future.

“Less regulation for more transformation,” he said, calling for a ‘regulation reduction act’ in Germany.

This, he explained, would be in response to the US inflation reduction act, which directs new federal spending toward reducing carbon emissions.