UniCredit Bank Austria industry report on the chemical sector:
Like so many industries, Austria's chemical industry has also been affected by the coronavirus crisis
- Production and sales in the Austrian chemical industry will see a fall in the range of 5% to 10% in 2020 as a result of the coronavirus crisis
- Chemical sales dropped by 1.1% to EUR 14.6 billion in 2019
- Growth prospects for the chemical industry remain positive
- By May 2020, the number of jobs created was even 2% higher than in the previous year
- Climate protection measures also require high investments from the chemical industry
The production of chemical products, hereinafter referred to simply as the chemical industry, cannot escape the crisis brought about by COVID-19, but should end the year 2020 with a lower decline compared to other industries. "The year began for the sector with an 8% increase in production in the first quarter. In addition, by May the number of employees had risen by an average of 2%, indicating a satisfactory utilisation of production capacity. However, chemical companies must expect a decline in production and sales in the range of 5% to 10% in 2020", says UniCredit Bank Austria economist Günter Wolf. "That said, due to the continuing high degree of uncertainty regarding the pace of economic recovery in important chemical sales markets in 2020, deviations in the estimation of the development of the sector cannot be excluded", adds Wolf.
A fair to middling chemical year 2019
Measured by the 3% increase in both production and employment, in the long-term comparison 2019 was a very positive year for Austria's chemical industry. From 2008 to 2018, both industry production and the number of employees increased by less than 0.5% per year on average. With the result in 2019, the domestic chemical industry was able to further expand its growth advantage not only compared to national industry, but also in comparison with the sector across Europe.
However, due to price declines in some segments, chemical sales in 2019 fell by 1.1% in nominal terms to around EUR 14.6 billion. Manufacturers of inorganic chemicals and plastics reported the heaviest loss in sales. The sales of both divisions have come under pressure due to falling prices. As shown by the comparison of the development of export values with the export volumes for the product groups, 2019 saw a 14% decline in inorganic chemicals exported from Austria in terms of value, but in terms of volume this was actually an increase of 0.3%. Exports of plastics fell by 9% in value terms, while the export volume decreased by only 2%.
Sales decline in 2020 was less severe than in 2009
In the first quarter of 2020, chemical production in Austria increased by 8%, which is above average. However, the fall in producer prices accelerated and slowed the industry's sales growth to 2% from January to March 2020. The fact that chemical producer prices saw a 5.1% drop by April (the latest data available), can be explained in part by the fall in prices for the petroleum distillate naphtha, which is the most important raw material of petrochemical products, for example plastics. Between January and April 2020, the price of naphtha fell by more than 70%.
Moreover, the increasing price pressure in the chemical industry is a signal of the increasing sales difficulties in the sector. In April, the effect of the coronavirus crisis on the industry economy was presumably fully evident, as shown by the fact that companies' production expectations for the next few months have dropped below their lowest level of 2009. In the latest economic survey in May, chemical companies remained as pessimistic as they were in the previous month.
It is worth noting that in the period from January to May new jobs were created in the chemical industry – one of few industrial sectors where this was the case – representing an average 2% increase on the previous year. Moreover, the expectations of companies regarding the development of employment in the coming months remained relatively optimistic even in May. Last but not least, the industry's 79% capacity utilisation in the second quarter of 2020 was still significantly above the industry average of 74%.
However, capacity utilisation has fallen below 80% for the first time since 2009, and is expected to worsen further in the next few months as the chemicals industry faces considerable sales difficulties. Europe's economy, and thus the demand for chemical products from Austria, will see only a slow revival. The estimates of the order situation and the production expectations of the chemical companies in May were correspondingly pessimistic.
"The continued positive development of employment in the domestic chemical industry suggests that production and sales in the industry will see less of a decline in 2020 than it did in 2009 at the time of the financial crisis, when production fell by 11% and sales by 14%. However, the industry must expect a drop in production and sales in the range of 5% to 10% in 2020. Due to the considerable degree of uncertainty regarding the further economic development in important sales markets, the estimate is associated with a relatively high fluctuation range and also allows for further downward revisions."
In the long term, chemistry is growing faster than the economy as a whole
The chemical industry serves a very wide range of customers, including plastics processors, manufacturers of electronics and electrical engineering, paper, textiles, food, steel and metal goods, as well as construction and the pharmaceutical industry. Approximately 48% of the chemical products consumed in Austria are processed as intermediate products (compared to the industry average of 37%), a further 5% are consumed directly by households and the rest are exported.
The wide range of possible uses of chemical products and the high competitiveness of the industry ensure long-term growth rates that are even slightly higher than overall economic growth. Since the mid-1990s, the value added of the chemical industry has increased by 3.6% per year adjusted for price, while the value added of all sectors in Austria has risen by just under 2%.
The Austrian chemical industry's main focus is the production of raw plastics, which, at around EUR 7.6 billion, contributes more than half of the sector's turnover. Another EUR 1.9 billion, or 13% of the industry's turnover, comes from the production of synthetic fibres, which has been the fastest growing sector in the last ten years. In the longer term, export successes with man-made fibres also prevented a stronger increase in the external trade deficit with chemical goods. In 2019, the product group contributed an export surplus of around EUR 960 million to the external trade accounts. In total, the deficit with chemical goods amounted to EUR 560 million.
Climate protection measures also require high investments in chemistry
Climate protection remains a driving force for further structural change in the production of chemical products. On the one hand, the industry supplies essential pre-products for CO2-saving technologies in the fields of renewable energy, mobility and residential construction. On the other hand, the chemical industry is also responsible for 8% of all greenhouse gas emissions from industry in Austria. The industry is relatively low-emission compared to the EU – measured by the emission intensity of 890 tonnes of CO2 emissions per EUR million of added value, which is 14% below the EU average. That said, significant investments are still required to be able to produce in a climate-neutral manner by 2050.
An analysis by the Institute of Industrial Ecology concludes that a major decarbonisation of chemical raw materials alone will require an investment of EUR 580 million per year over the next three decades. Minus current investments that have already been spent on increasing efficiency in the chemical industry, there is still a requirement for investment of at least EUR 260 million per year to reach the target. "In order to achieve the national climate targets by 2050, the Austrian chemical industry must increase its annual investment volume of an average of EUR 760 million over the past three years by at least one third", concludes UniCredit Bank Austria economist Günter Wolf.
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, tel. +43 (0) 50505 - 41954;