“Peter is a friend of chemistry,” says Wolfgang Große-Entrup, General Manager of the German Chemical Industry Association (VCI). The massive economic slump that was predicted by many did not materialize. The chemical industry, especially BASF boss Martin Brudermüller, had also warned of this. However, one “got through the winter on the last groove,” says Große-Entrup, describing the challenges for the industry. As a result, production fell significantly by 6.6 percent last year. Because the chemical companies suffer from the high energy prices in two respects, because they need oil and gas both for energy generation and for production. However, with spring comes confidence.
The mood in the industry has improved, as a current study by the Ifo Institute in Munich shows. But that doesn’t mean things are looking up. Rather, the industry expects production to fall by five percent this year, excluding pharmaceuticals by as much as eight percent. Because customers are holding back on orders because of the weak economy, and the situation is particularly critical in basic chemicals.
No turnaround in sight yet
In January, as shown by data from the Federal Statistical Office, production increased sharply, especially in energy-intensive industries.
But the economists at Commerzbank also attribute this to a statistical calendar effect. It is therefore not yet possible to read a trend from this individual month. The chemical industry describes the current development as “stabilization at a low level”. The lower energy prices would help companies. The “quite good” crisis management by the federal government is also to be commended, for example in the provision of liquid gas, which was faster than expected.
In addition, the companies have had great success in increasing their efficiency – and thus also in saving energy – according to a study by the German Economic Institute (IW) from Cologne. But especially in the energy-intensive industry, the crisis was also accompanied by the reduction or cessation of production by a fifth. It is questionable whether these systems would ever be started up again. For example, the industry giant BASF has shut down chemical plants at its main plant in Ludwigshafen, especially for the very energy-intensive production of ammonia.
Pilot project at BASF to produce hydrogen without CO2 emissions
According to the authors of the IW study, the chemical and metal-producing industries require three quarters of industrial energy in Germany. Germany is particularly hard hit by these developments. Although energy prices have also fallen here, they are still higher than at other locations.
Instead, the larger companies in particular are looking abroad. The Inflation Reduction Act (IRA) of the Biden administration, for example, is enticing many companies to build new plants in the USA instead of in Europe or Germany. There, however, not only are the subsidies larger and the energy prices lower. There are also other framework conditions such as strong regulation. “We need one Regulation reduction act“, the VCI general manager put it boldly. Because while large companies could certainly relocate their locations abroad, small and medium-sized chemical companies would not be able to do so. After a year of high energy costs, they are now suffering primarily from the consequences of high inflation and the associated poorer order situation.The discussion about a cheaper industrial electricity price for energy-intensive companies is only just beginning in Germany.Federal Economics Minister Habeck sees such an instrument “only in the medium term”.