Sector Report from Bank Austria Economics:
Chemicals industry regains stability following crisis year
- Production decreases by 11 per cent and sales drop by 17 per cent to EUR 6.4 billion in 2009
- Subdued upswing in 2010: first half of the year characterised by strong production growth, declining employment figures and ambiguous price developments
- Chemicals show competitive strength in many areas
Without a doubt, 2009 was one of the worst financial years in the history of the Austrian chemicals industry. Production decreased by 11 per cent and sales declined by 17 per cent to EUR 6.4 billion. However, these figures show that, in comparison to other export-intensive sectors, the chemicals industry actually got off lightly. This is the conclusion of a new analysis by Bank Austria Economics. Although the recovery in 2010 remains subdued, the chemicals industry resumed its role as a forerunner in the economic cycle months ago. The sector is expected to post an average increase in production of at least 6 per cent this year, but it will take until 2012 at the earliest before the industry is able to offset the sales losses totalling EUR 1.4 billion from the previous year.
In May 2010, average producer prices in the chemicals industry rose back up to the pre-recession levels seen in mid-2008. The keys to this price surge were the large price increases in plastics, accompanied by just a slight rise in the price of detergents and cosmetics and an 8 per cent drop in the price of technical chemicals. "The plastics industry overcame the brief but severe downturn a long time ago. The steep increase in production prices since the end of 2009 shows that manufacturers and processors have restocked their inventories of raw materials," said Bank Austria economist Günter Wolf. At the forefront here is the massive increase in the price of naphtha, a derivative product of petroleum and the main raw material used to produce plastics and chemicals. Plastics manufacturers then proceeded to pass these price increases on to their customers with a slight delay.
With the exception of the plastics segment, the chemicals industry did not deliver clearly positive results in the first half of 2010. On one hand, the 5 per cent average growth in production output up until May is a sign of a stable growth in demand; on the other, the ambiguous price developments and the 1.4 per cent decline in employment in the first half of the year indicate a certain amount of uncertainty on the market.
Austria's chemicals industry has secured its future by offering a range of products that create significant added value and by progressively improving its productivity. Over the past ten years, for example, the industry's output per working hour has increased roughly three times more quickly than the European average. At the same time, the number of employees in the industry has declined by less than 10 per cent, while the average decline in employment in the EU was over 20 per cent. "Although the growth prospects for the Austrian chemicals industry are limited in comparison to a number of specialised locations, the sector will be able to retain its competitive strength in the future as well," said sector analyst Günter Wolf with conviction.
The development of the foreign trade balance shows how competitive the sector is, but it also indicates the areas in which the sector faces problems, such as increased price pressure and the lack of production capacities in some product areas. Overall, the foreign trade deficit for chemical products rose from EUR 1 billion in the mid-1990s to EUR 1.5 billion in 2005, but it has improved since then. In 2009, the deficit was well below the EUR 1 billion mark again. Austria's chemicals industry is an expansive sector with high export and import growth rates. It relies to a large extent on importing cheaper raw materials mainly from Eastern Europe, and in some consumer-oriented areas it meets the strong rise in demand through imports when there are not enough production capacities available in Austria.
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