German chemical body VCI sees 2022 output falling 8.5%

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German chemical industry association VCI has cut its full-year output forecast again due to "the dramatic developments on the gas and electricity markets" and expects chemical production, excluding pharmaceuticals, to decline 8.5% in 2022.

VCI's previous forecast, made in July, was for a 4.0% drop in production.

At the beginning of 2022, the association had predicted a 1.5% increase in chemicals output. VCI now also estimates that German production of chemicals, including pharmaceuticals, will decrease 5.5% in 2022.

There was uncertainty over whether rationing of natural gas will be necessary in Germany this winter, VCI said.

Preparations for a shortage were in full swing, fears of a recession were high, and business expectations for the coming months were in the "basement," it said.

One outcome could be shutdowns of chemical plants. "The immense challenges put the competitiveness of our companies in serious danger and thus also the future of Germany as an industrial location. Reducing production is a first step. If certain processes must be shut down completely, they may never start again," said VCI president Christian Kullmann, who is also the chairman of Evonik Industries.

Second-quarter output in Germany's chemical industry was down 8.2% year on year and by 5.2% quarter on quarter.

Capacity utilization was below normal levels, at 81.4%, VCI said. "Production has collapsed in all divisions" as the country's chemical-pharmaceutical industry felt the consequences of the war in Ukraine, with "astronomical energy prices, sharply increased raw material costs, and persistent supply bottlenecks," it said.

Chemical industry sales rose again in the second quarter, by 21.6% year on year and 3.4% on the quarter, to Eur64.9 billion ($65 billion), due to higher producer prices, which increased 24% year on year and 7.9% on the quarter.

The rise in sales was, however, "significantly smaller" than in the previous quarter, VCI said. Many chemical companies in Germany saw their revenue decline, however, and it was increasingly difficult for firms to pass on the high energy and raw material costs to their customers, VCI said.

The number of employees in the industry remained constant, with more than 473,000 people working in Germany's chemical and pharmaceutical industries, VCI said.