Adapting to CHANGE The European chemicals sector has been seeing its strongest growth for several years – but will it last? Sean Milmo reports on how the sector is responding to the demands of a changing market.
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he European chemical industry has been growing at its fastest rate for years in the wake of a global economic recovery which has boosted demand for chemicals across the world. But the revival in the sector, which has been experiencing sluggish growth in recent years, has still not been strong enough to bring it back to the production levels before the 2008 financial crisis. Nor is it likely to last long. In fact, the output growth of last year is expected to slow to 2 per cent this year compared to 3 per cent in 2017, according to forecasts by the European Chemical Industry Council (Cefic), the Brussels-based main European chemicals trade association. This has been partly a reflection of a slowdown in the growth of the overall European economy. With a wide range of customer sectors ranging from construction, automotive and aerospace to agriculture and healthcare products, the European chemicals industry is vulnerable to changes in GDP growth rates. Growth in the euro area, comprising most of western Europe, is forecast to slow from a 2.4 per cent rate in 2017 to 2.1 per cent in 2018 and 1.9 per cent next year, according 10 Industry Europe
to figures earlier this year from the Parisbased think-tank Organisation for Economic Cooperation and Development (OECD). Germany is predicted to grow 2.3 per cent in 2018, and 1.9 per cent in 2019, after a rise of 2.5 per cent in 2017. A downturn in growth is also expected in both France and Italy, while in the UK a growth decline is predicted to continue through 2018, says the OECD.
Long-term prospects However growth in the European chemical industry is also being hampered by long-term underlying factors. These have been making parts of the sector – particularly in commodity products – globally uncompetitive since the turn of the century. They include high energy, raw material and capital investment costs compared with competitors in North America, the Middle East and parts of Asia. As a result, in some key segments of the European chemicals market a rising proportion of sales are taken by lower-cost imports. In some product categories the majority of chemicals are supplied by Asian producers. Europe’s share of the total global production of chemicals has been rapidly shrinking from around a third in the mid-1990s to 15 per cent in 2016.
This decrease will almost certainly continue in the next decade as world chemicals output expands while that of Europe continues to stagnate. In the period 2006–2016 average chemicals production growth in the European Union was minus 0.04 per cent while that of China was 12 per cent, according to Cefic figures. On the other hand the industry has been gradually building a platform for long-term international competitiveness derived from high value and margin speciality chemicals, which have a relatively big R&D input. It is already a world leader in the development of technologies and processes for a low-carbon economy in which chemicals will no longer be predominantly sourced from fossil fuels as they have been since the 19th century.
The need to restructure Currently the industry is going through a transition period which is bringing tough challenges, presenting companies with the need to radically reorganise their businesses. Petrochemicals is currently the part of the industry threatened with major restructuring. Its output provides the building blocks and derivatives for the majority of the tens of thousands of chemicals on the European
