Chemical Industry in Europe – Trends Cefic Industrial Policy Programme 29 November 2018 Dr Moncef HADHRI, Cefic Industrial Policy, Economic Affairs, mha@cefic.be

Moderate slowdown of the global economy as expected Chart2: China dominates chemicals world ranking   China continues to dominate the world ranking. China sales levels are higher than the next nine countries combined – as much as the NAFTA and EU markets put together. In 2017, the 30 largest chemical-producing countries had a combined turnover of €3,133 billion, together accounting for 90.2% of global chemical sales. Twelve of the top 30 biggest producers are Asian, generating chemical sales of € 1,945 billion – 56.0% of the world market. Twelve of the top 30 are European producers, generating sales revenue of €574 billion (16.5%). Five of the top 30 are American producers, generating chemical sales of €599 billion (17.2%). Finally, Australia contributed 0.4%. The world landscape of the chemical industry is changing rapidly. China is planning an ambitious industrial policy strategy to take its chemical industry to the next stage of development – a strategy outlined in the “ 13th Five-Year Plan” for the Chinese petroleum and chemical industry. China is looking to move from “following the lead” to “taking the lead” and from a “big country” to a “great power” of the petroleum and chemical industry, leading on technology innovation and trade and prevailing in international markets. Source: Cefic EOTF (Economic Outlook Task Force) meeting 22-23 Nov-2018

1. Chemicals business in Europe still strong and highly innovative sector

Chemicals business in Europe still strong and highly innovative sector Europe is the second largest chemicals producer in the world (€542 billion, 2017) World market share of EU chemical sales halves, (2017, 15%) EU chemicals trade surplus reaches a significant level (€48,1 bn in 2017. The EU has by far the largest chemicals exporting area in the world) Capacity U. is above its long-term average (Q3-2018) Europe’s relative competitive disadvantage reduced compared to US and Middle East (H1-2018) EU capital spending reaches the second highest level since 2000 (€21,6 billion in 2017) EU R&I spending reaches the highest level since 2000 (€9,7 billion in 2017) Chart2: China dominates chemicals world ranking   China continues to dominate the world ranking. China sales levels are higher than the next nine countries combined – as much as the NAFTA and EU markets put together. In 2017, the 30 largest chemical-producing countries had a combined turnover of €3,133 billion, together accounting for 90.2% of global chemical sales. Twelve of the top 30 biggest producers are Asian, generating chemical sales of € 1,945 billion – 56.0% of the world market. Twelve of the top 30 are European producers, generating sales revenue of €574 billion (16.5%). Five of the top 30 are American producers, generating chemical sales of €599 billion (17.2%). Finally, Australia contributed 0.4%. The world landscape of the chemical industry is changing rapidly. China is planning an ambitious industrial policy strategy to take its chemical industry to the next stage of development – a strategy outlined in the “ 13th Five-Year Plan” for the Chinese petroleum and chemical industry. China is looking to move from “following the lead” to “taking the lead” and from a “big country” to a “great power” of the petroleum and chemical industry, leading on technology innovation and trade and prevailing in international markets. Source: Cefic Chemdata International

EU capacity utilisation is above its long-term average Chart2. EU Capacity utilisation is above its long-term average   Capacity utilisation was up 0.7% (Q2-2018). According to EU Commission Business Survey data, capacity utilisation in the EU chemicals sector reached the value of 83.4% in the third quarter of 2018, down from 83.6% reached in the second quarter of the same year. Capacity utilisation was 0.2% below the previous year’s level (Q3-2018 vs Q3-2017). Chemicals capacity is 2.6% above the long-term average (2005-2017).

2. Chemical Industry in Europe – Latest Trends

Confidence indicators: Export orders down, output expectations rather stable Trade development less dynamics Stock: Continuing upward trend on the level of stocks of finished products since Q3-2017, Exports: less satisfaction on exports order book level since Q3-2017, Production expectation: rather stable, Confidence: No major changes in the EU chemicals business (remained stable) *Chemicals excluding pharmaceuticals (Nace 20)

Chemicals output: Negative growth in Q3-2018 (-1,3% y-o-y, -1,2%, p-o-p) Growth, Jan-Sep (-2,7%, y-o-y) 2015 (1,8%), 2016 (0,3%), 2017 (1,9%), 2018 (Sep, 0,2%) Production in the EU chemicals sector grew 0.2% from January to September 2018 compared to the same period of 2017, with output rising in some chemicals sub-sectors. Growth, Jan-Sep (-6,0%, y-o-y)

Sectoral output growth: down in most key sectors (Jan-Sep-2018, y-o-y) Cosmetics is an exception Jan-Sep (4,4%, y-o-y) Base chemicals: most affected Specialties posted less significant output growth (0.1%, y-o-y). Basic inorganics however reported negative growth of 6.0% during the same period. Consumer chemicals did well and grew far above the other chemicals sectors (about 3%) Strong drop in dyes & pigments and crop protections *Chemicals excluding pharmaceuticals (Nace 20), production figures on chemicals sectors are not comparable; they did not have the same degree of country coverage,

Chemicals prices in Q3-2018; the highest level in 5 years (5,5% y-o-y, 1,4%, p-o-p) 2016 (-3,3%), 2017 (4,7%), 2018 (Sep, 3,6%) Price growth (5,4%, Jan-Sep) Producer prices were above the previous year’s level, growing 3.6% in the EU chemicals sector from January to September 2018 (y-o-y). Petrochemicals (5,4%), basic inorganics (5,3%), and polymers (4,2%) posted significant growth in prices compared to the other sectors. Price growth (4,2%, Jan-Sep)

Chemicals sales in Q2-2018; the highest level in 6 years (Q1-2012) Sales growth, mainly driven by higher growth in producer prices Total sales (domestic and exports) in the EU chemicals sector grew about 4% from January to August 2018 compared to the same period of 2017. Q2-2018 reached the highest sales values since Q1-2012 (6 years).

Employment growth continues for the fifth consecutive quarter (since Q2-2017) Employment up 1.6% (Jan-June-18) Direct employment was above the previous year’s level, growing 1.6% in the EU chemicals sector during the first half of 2018 compared to the same period of 2017. Employment growth continues for the fifth consecutive quarter.

Exports values jump 4.2% (Jan-Aug, 2018, y-o-y) Exports reached the value of €108.4 bn through August 2018, up from €104.0 (y-o-y) (+€4,3, +4.2%). A significant increase in EU exports values to the USA in both petrochemicals (+ €1,08 bn, +14%) and specialty chemicals (+€0,65 bn, +11,7%). A strong decline in EU exports to China in petrochemicals (-€342 mn, -13%) A significant decline in EU exports to South Korea in basic inorganics (-€186 mn (-4,3%) *Chemicals excluding pharmaceuticals (Nace 20)

Exports volume jump 1.5% (Jan-Aug, 2018, y-o-y) Exports reached the volume of 55,2 MT through August 2018, up from 54,4 MT (1,5%, y-o-y) Exports in petrochemicals went down (-1,2%), mainly due to the strong decline in EU exports to China (-1,02 MT, -50%) A significant increase in EU exports to ME (+0,4 MT) and to the USA (+0,3 MT) A significant decline in EU exports to Africa in basic inorganics (-13%) *Chemicals excluding pharmaceuticals (Nace 20)

Imports values jump 6.8% (Jan-Aug, 2018, y-o-y) All chemicals sectors posted an increase in imports except b. inorganics and consumers Imports reached the value of €77.2 bn through August 2018, up from €72.3 (y-o-y) (+€4,9, +6.8%). Chemicals imports went up significantly from China (+€1,5 bn) and Rest of Europe during the same period (0,84 bn) Imports from the USA fell (- €203 million), mainly basic inorganics and consumers. *Chemicals excluding pharmaceuticals (Nace 20)

Imports volume jump 9.5% (Jan-Aug, 2018, y-o-y) Imports reached the volume of 60,2 MT through August 2018, up from 55,0 MT (9,5%) A significant increase in imports from Rest of Europe (+1,4 MT), mainly basic inorganics and petrochemicals A important increase in imports from China (0,8 MT), mainly specialty and polymers Decline in imports from Japan in Specialties (-0,2 MT) and from Africa in basic inorganics (-0,4 MT) A significant decline in EU exports to Africa in basic inorganics (-0,4 MT, -9,0%) *Chemicals excluding pharmaceuticals (Nace 20)

Trade environment in 2018: less attractive for exports (import driven) EU petrochemicals exports have declined significantly (by 1,2% in volume), mainly affected by the sharp decline in EU exports to China (-1,02 MT, -50%) during the same period (Jan-Aug-2018, y-o-y) Imports grew more significantly than exports (in both volume and values). The external trade environment still less dynamics for exports in 2018 compared to 2017.

Chemicals* Trade Surplus (€31.18 billion, Jan-Aug, 2018) Trade surplus down by €0.559 billion (Jan-Aug-18) The net trade surplus was €31.18 billion during the first eight months of 2018, down from €31.74 bn during the same period of 2017. As expected, the largest EU chemicals surplus occurred with rest of Europe, the USA, Africa and Brazil. EU chemicals however registered a trade deficit with India, South Korea, China and Japan. *Chemicals excluding pharmaceuticals (Nace 20)

Weak growth in the EU chemicals industry (a disappointing year 2018) Chemical output: Chemicals output went up by 0.2% during the first nine months of 2018 (y-o-y) Chemicals prices: Producer prices were above the previous year’s level, growing 3.6% in the EU chemicals sector through September 2018. Chemicals imports up 6.8% (Jan-Aug, 2018). EU chemicals imports reached the value of €77.2 bn from January to August 2018, up from €72.3 bn (y-o-y) Chemicals exports jump 4.2% (Jan-Aug, 2018). EU chemicals exports reached the value of €108.4 billion through August 2018, rising by 4.3 bn. Employment: Direct employment was above the previous year’s level, growing 1.6% in the EU chemicals sector during the first half of 2018 compared to the same period of 2017. *Chemicals excluding pharmaceuticals (Nace 20)

Conclusion-1 Chemicals business confidence shows no major development; chemicals companies perceive no significant improvement during the coming six months. The business climate remained relatively stable, however, exports order books is less satisfactory reflecting some uncertainties surrounding the trade business environment. Production in the EU chemicals sector grew 0.2% from January to September 2018 compared to the same period of 2017. Apart from consumers chemicals, most sectors reported a decline during the first three quarters of 2018. Base chemicals were most affected by a steep decline in output compared to other sectors. Consumer chemicals performed well and grew far above the rest of chemicals. Sales in the EU chemicals business were above 4% above the previous year’s level, mainly due to higher producer prices during the same period. Prices in the chemicals business reached in Q3-2018 the highest level since 5 years. The driver behind this trend is the increasing oil prices registered during the same period. Direct employment continue to grow above the previous year’s level, growing 1.6% in the EU chemicals sector during the first half of 2018. Employment growth continues for the fifth consecutive quarter.

Conclusion-2 Exports activities were less dynamics compared to imports for most sectors. Trade data in volume show a strong decline in EU exports to China. China still the second largest EU trade partners accounting for 10% of global chemicals trade. EU petrochemicals exports have declined significantly (by 1,2% in volume), mainly affected by the sharp decline in EU exports to China (-1,02 MT, -50%) during the same period (Jan-Aug-2018, y-o-y). Imports grew more significantly than exports (in both volume and values). The external trade environment still less dynamics for exports in 2018 compared to 2017. Outlook: A disappointing year 2018; output decline in the first half of 2018 was more severe than expected. 2018 growth in chemicals is expected to be negative and less than 1% (-0,5%), One factor explaining this decline is in particular the weak performance of Germany on the one hand. On the other hand, the weak growth of the Automotive sector in Europe could not help (0,5%) Despite the solid growth of the EU construction in both 2017 and 2018, the chemicals did not benefit from these positive developments and still reporting lower growth compared to the manufacturing sector.

Chemicals* sales broken down by sub-sector *Chemicals excluding pharmaceuticals (Nace 20)

Chemicals* Output– Latest Trends *Chemicals excluding pharmaceuticals (Nace 20), production figures on chemicals sectors are not comparable; they did not have the same degree of country coverage,

3-11. Chemicals* Prices– Latest Trends *Chemicals excluding pharmaceuticals (Nace 20), prices figures on chemicals sectors are not comparable; they did not have the same degree of country coverage,

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