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Germany’s chemicals production is likely to fall this year as soaring energy and raw material costs hurt the sector’s competitiveness, industry association VCI said on Wednesday.

Having scrapped its forecast of 2% growth in March, the lobby said it now expects 2022 production to fall by 1.5%, assuming price-intensive but sufficient supply of energy and raw materials.

“Profitable growth will not be a talking point for the time being,” VCI President and Evonik CEO (EVKn.DE) Christian Kullmann told a news conference.

While natural gas was still available for chemicals production, prices were exorbitantly high, he added, noting gas was likely to remain significantly more expensive in Germany than in other regions.

Last month, Germany moved up to Phase 2 of its three-tiered emergency gas plan in a bid to mitigate supply shortages as it struggles to reduce its dependence on Russian oil and gas imports. read more

“Against this background, Germany as a business location is increasingly facing a competition problem – and not only in the energy-intensive sectors,” Kullmann said.

The industry should attempt to balance the looming threat of a gas emergency through pricing mechanisms, said VCI Director-General Wolfgang Grosse Entrup.

He added that if there was insufficient gas supply, it would “very clearly” lead to production shutdowns.

For the pure chemicals business, the association expects 2022 volumes to fall by 4%.

The sector’s production in the first half of the year rose by 0.5%, though it fell by 3% when excluding pharmaceuticals. Plant capacity utilisation dropped to 80%.

Long delivery times, high freight costs and supply bottlenecks hampered companies, VCI said.

While first-half revenue rose by 22% to 130 billion euros ($133.38 billion) due to a surge in producer prices, about 70% of surveyed businesses reported a drop in net profit, a VCI poll showed.

Source By: Reuters