The German chemicals and petrochemicals industries experienced a slowdown in H211 as manufacturing sectors were hit by the effects of the eurozone crisis. Nonetheless, BMI’s latest Germany Petrochemicals Report remains optimistic that producers will pull through even as the domestic market faces stagnation.

Chemicals output excluding pharma fell 3% q-o-q in Q311, but was up 1.5% y-o-y. The quarter-onquarter decline was in large part due to destocking in response to the global economic downturn and uncertainties created by the eurozone crisis. Capacity utilisation declined from 86.4% in Q211 to 84.0%, but this was still within normal range.

Germany Petrochemicals Market Report Q1 2012

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Germany’s chemical sector activity continued to slow in September 2011, dropping 1.3% month-onmonth (m-o-m) and 0.2% y-o-y. Among major domestic end users, lower output was recorded at factories making vehicles and components (-10.8%) as well as in the engineering (-4.4%) and construction (-0.8%) sectors, according to the Federal Statistical Office of Germany (Destatis). Base chemicals output dropped 0.9% m-o-m in September, including a 6.1% m-o-m decrease of inorganic base chemicals and a 4.1% decline in organic base chemicals. By contrast, the production of plastics in primary forms grew 2.6% mo- m.

Prices in Q311 were stable, increasing just 0.4% q-o-q as raw material costs steadied. Expectations of price declines prompted chemical users to run down stocks and delay purchases. Despite the modest downturn, BMI has held on to its forecast of 10% growth in the value of German chemicals sales to surpass EUR180bn in 2011. Q311 saw a 1% q-o-q drop in sales, but the level was still up 6.5% y-o-y. We expect a slightly stronger Q411 as inventory reductions are completed, leading to a forecast 5% rise in output.

In 2012, BMI expects weak consumer sentiment caused by the debt crisis in the eurozone and its impact on the banking sector to undermine German chemicals output. However, it is not certain that the market will collapse in the same way as in late 2008, as supply chains are tighter, with inventories at far lower levels than in 2008. The German chemicals market, which represents a quarter of EU sales, will be pivotal to growth in overall European chemicals production. Indeed, the slowdown in domestic demand will inevitably reduce imports. As a result, European producers cannot bank on German demand to compensate for weaknesses elsewhere in the EU market, and many will fail to match the competitiveness of the country’s diverse and highly integrated petrochemicals industry.

Germany scores 79.8 points and is placed first in BMI’s Western European Petrochemicals Ratings, 8.1 points ahead of France. BMI believes that Germany’s score is unlikely to change dramatically, with no major basic petrochemicals capacity additions planned over the next five years. However, with little new capacity coming on-stream elsewhere in Western Europe over our forecast period, Germany should retain its top spot in our ratings.