Update: The global situation of the chemical industry: challenges and outlook
The chemical industry continues to struggle. Last year, it was mainly European and German manufacturers who complained about falling sales and insufficient capacity utilisation, but the phenomenon is now global – the world economy is showing clear signs of slowing down. We look back to the year 2024 and venture an outlook.
The chemical-pharmaceutical industry in Germany looks back on a challenging year 2024. Despite a slight increase in production of 2 per cent, the industry continues to be in a low valley, characterised by falling sales, a low order situation and ongoing pressure to adapt. The economic situation not only reflects the difficulties in Germany, but also global trends, as highlighted in reports by Deloitte and Cefic.
Markus Steilemann, CEO of the plastics manufacturer Covestro and President of the German Chemical Industry Association VCI, drew a sobering conclusion when presenting the industry's balance sheet on 13 December 2024: ‘The only bright spot is that the rapid downturn of the last two years has not continued.’ Despite a 2 per cent increase in production, the chemical industry's output is still well below 2018 levels. By way of comparison, production in the chemical-pharmaceutical industry fell by 16 per cent, and in the chemical industry alone by as much as 17 per cent. This illustrates the industry's deep structural crisis.
VCI President Markus Steilemann reported on the challenges facing the chemical-pharmaceutical industry in Germany at a press conference in December 2024.In addition, production facilities were only operating at 75 per cent of capacity in 2024 – a figure that has been below the profitability threshold of 82 per cent for four years. This underutilisation has already led to plant closures and further shutdowns being planned, particularly in Germany. At the same time, companies are struggling with falling prices: Chemicals were on average 2.5 per cent cheaper than in the previous year, which further exacerbated the 2 per cent decline in sales to 221 billion euros. Domestic sales were particularly affected, falling by 4 per cent.
Pharmaceutical production recorded a decline of 1.5 per cent, weighed down by supply chain problems, capacity bottlenecks and declining demand from Europe and the US. Specialty chemicals also faltered, with production falling for the third year in a row, this time by 2 per cent.
Global economy falters
Global trends illustrate the divergent development of the chemical industry: While Europe and especially Germany are struggling with high energy prices and a complex regulatory environment, the US is benefiting from cheap shale gas and government investment programmes. Nevertheless, even in the US, the sky is not the limit in view of a weakening economy that is expected to continue: the US chemical industry association ACC reported in December that the volume of chemical imports and exports in 2024 had fallen significantly to its lowest level since 2021. No data is currently available for the Asian region, which includes China as the world's largest chemical producer – in 2023, chemical production in China had still increased by 6.1 per cent.
By contrast, the European chemical industry is lagging well behind its expectations for a recovery in the chemical industry in 2024. According to Cefic, although exports have increased by 8 per cent, competitiveness is being affected by high production costs and low momentum. For example, gas prices in Europe will remain almost four times higher than in the US in 2024.
Development of chemical and pharmaceutical production in GermanyLittle optimism for 2025
The outlook for 2025 gives little cause for optimism and is characterised by many uncertainties. According to the VCI, production could increase by 0.5 per cent, driven by a slight increase in pharmaceuticals (+0.5 per cent) and stagnation in chemicals. Sales are expected to remain at the 2024 level.
The ACC also sees further difficulties: ‘Looking ahead to 2025, a number of challenges and opportunities will arise for U.S. chemical producers,’ says Martha Moore, chief economist at the American Chemistry Council: ‘Against the backdrop of new political leadership, weak global demand and production from China, the U.S. chemical industry is looking forward to building on its energy advantage...’.
In Germany, the member companies of the VCI have mixed views about a possible recovery: while the more optimistic companies expect a turnaround as early as autumn 2025, half of the companies do not expect a significant recovery in demand until 2026 or later.
Improving competitiveness remains a key lever for the future of the industry. According to a study by Boston Consulting, German chemical companies need to increase their productivity by 10 to 30 per cent to be able to keep pace internationally. This requires innovation, investment and a business-friendly environment. However, there is a worrying development when it comes to investment: while German companies are cutting their innovation budgets, investment abroad is increasing – particularly in the US and Asia.
Global perspectives: trade as an opportunity
The EU-Mercosur agreement offers new opportunities for the industry. According to Cefic, the agreement could strengthen trade with South America, reduce tariffs and promote investment. This would give the European chemical industry a much-needed boost to growth, and also reduce dependence on China.
In view of the challenges that continue to exist in Europe, the VCI appeals to politicians. The central demands are
- Competitive energy prices: reduce electricity costs and expand infrastructure
- Reduction of bureaucracy: simplify approval procedures
- Corporate tax reform: relief for companies
- Investments in the future: priority for infrastructure, education and safety
Conclusion: The chemical-pharmaceutical industry in Germany is at a crossroads. The course set in 2025 - whether by political decisions, technological progress or strategic investments - will determine whether the industry can regain its competitiveness and benefit from global growth impulses.
March 2024: The global situation of the chemical industry: challenges and outlook
The chemical industry in Europe is lamenting a weak economy, high energy prices and excessive bureaucracy. But what is the situation like worldwide? Where are the winners and losers? We look back at 2023 and venture a loop into the future.
The chemical industry is facing a number of challenges worldwide, in Europe, Germany and the USA, which are shaping its development and future prospects. The latest forecasts from the European Chemical Industry Council (Cefic) and the German Chemical Industry Association (VCI) make it clear that the industry is in a critical phase, characterized by low growth, declining production and difficult market conditions.
In Europe, the chemical industry has suffered a significant setback since the Russian invasion of Ukraine in February 2022, especially in key sectors such as petrochemicals, polymers in primary forms and inorganic base materials. One of the main reasons for this is the rise in energy prices following the loss of Russian gas supplies. Added to this is the decline in demand for goods as a result of the Covid-19 pandemic, inflation, falling purchasing power and a complex regulatory agenda. Marco Mensink, Director General of the European Chemical Industry Council (Cefic), points out that high energy and raw material costs are hampering Europe's competitiveness on the global chemical markets: "Energy costs are the Achilles heel of the European chemical industry. No other region in the world is as affected as ours." This is another reason why investments in Europe are under great pressure. Meanwhile, investment is increasing again in other regions, particularly in the USA and the Gulf region.
China, by far the largest global producer of chemicals, plays a decisive role as the EU27's largest trading partner for chemical products - and Europe's dependence on Chinese imports continues to grow. However, despite the difficult situation, the European Chemical Industry Council expects a gradual normalization of demand structures and an increase in purchasing power in 2024, which could boost private demand. Nevertheless, growth expectations for 2024 remain limited. According to Cefic estimates, chemical production in Europe could increase by 1% this year.
Germany is a special case
The situation is particularly critical in Germany, the largest chemical location in Europe. The German Chemical Industry Association (VCI) was disappointed across the board when it presented its annual report in December: excluding the pharmaceutical business, chemical production fell by 11% in 2023. At 77%, production capacity utilization was below the economically necessary basic capacity utilization of 82%. 15 percent of the approximately 1,900 member companies are already in the red, according to a member survey conducted by the association. "We are in the middle of a deep, long valley. And it is still unclear how long we have to get through it," says VCI President Markus Steilemann.
The outlook for the future is not promising either, with expectations of a continued decline in turnover and production figures. Companies are under pressure from declining sales, falling sales prices and high production costs. This has led to drastic measures, including the closure of production plants and the relocation of investments abroad.
BASF, a leading company in the German chemical industry, announced the closure of key production facilities at its Ludwigshafen plant to counter rising costs, particularly the high price of natural gas. This reflects the general trend in Germany, where companies are forced to adjust their cost structure and shift investments abroad.
USA and global competition win
In contrast, the chemical industry in the USA is showing a more positive trend thanks to recent legislation such as the Inflation Reduction Act and the Chips Act. In its November 2023 forecast, the US chemical association ACC predicted a decline in production of 1.9%, but expects slight growth for the US chemical industry again in 2024. According to ACC figures, global chemical production rose by 0.3% in 2023, and global growth could even reach 2.9% in 2024.
Although the US association also complains about the US government's excessive regulation of chemical production, member companies appear to be much more optimistic about the near future than their competitors in Germany: corporate investment rose by 4.1% in 2023. However, the association expects investment spending to fall in 2024 due to higher borrowing costs and expected lower consumer spending.
The fact that global chemical production was able to increase at all in 2023 despite weak figures from Europe and the USA is primarily due to the comparatively strong development of producers in the Asia-Pacific region, above all China: the increase here was a whopping 3.7%.
Challenges and light at the end of the tunnel
Overall, the global chemical industry is facing a whole range of challenges: Regionally varying energy and raw material costs, currently weak demand, stricter regulation and geopolitical uncertainty. The industry in Europe and Germany in particular is having a particularly difficult time, while the USA is in a more stable position thanks to political support, low-cost energy and raw materials (shale gas) and an overall positive investment environment.
The picture for the future is mixed: While there is overcapacity in some areas such as petrochemicals, innovation and technological advances could create new opportunities for growth. The chemical industry in Europe, especially in Germany, is likely to focus on increasing efficiency and developing new products and technologies (specialty chemicals) in order to meet the challenges of the energy transition and fulfill the requirements of the European Green Deal. Digitalization will play a crucial role in this context. The switch to more sustainable practices and the emphasis on the circular economy will also be important trends in the chemical industry. These developments could help to reduce dependence on fossil fuels while opening up new market opportunities.
In the US, the chemical industry is expected to continue to benefit from investments in clean energy and the strengthening of the domestic manufacturing base. However, the challenges posed by higher interest rates and the global economic slowdown will also be felt there. Globally, the chemical industry should recover in the long term as the overall global demand for chemicals increases. However, the industry must adapt to changing geopolitical scenarios and the need for greater localization and diversification of supply chains.
The pressure to adapt is particularly great in Germany and Europe - because the competitive disadvantages caused by high energy and raw material prices will not change in the near future.
