European chemicals output is likely to contract by between 5% and 6% this year ECMSA executive board member Henrik Meincke says as the sector faces up to the most challenging operating environment for decades. Henrik makes the forecast in a paper prepared on behalf of the ECMSA for the European Parliament at the Parliament’s request. (You can download the European Parliament document here)

Global recession and the credit crunch have forced reduced operating rates, plant shutdowns and even plant closures, across the sector. Vitally important customer industries, particularly those related to autos, housing and consumer electronics are severely depressed and hold considerable inventory. But the chemical industry can expect to start operating under more normal conditions, Henrik says. Late 2008 and early 2009 were difficult to say the lease but he believes the worst is over. “This is not a sign of an overall recovery,” he warns, “but some kind of ‘normalisation’ within the downward trend”.

Demand for chemicals is expected to increase, Henrik’s report says, as downstream customers realise that it may not make sense to speculate further on lower prices for base chemicals. The data show that chemicals output, excluding the benign influence of pharmaceuticals, dropped 13% year on year in Europe in the fourth quarter. Up until the end of September output was down just 0.1%.

Not surprisingly the output of basic chemicals was hardest hit, the fall in output in this segment a whopping 18% in Europe in the fourth quarter. That is a steeper fall than the 11% drop registered in the second quarter of 1980. EU petrochemicals output was down 17% in the fourth quarter of 2008 and polymers down 18%.
Chemicals plant closures will have helped keep inventories low. And as re-stocking begins, announcements of a return to more normal production levels might be expected. “This should give the markets further confidence for future planning,” Henrik says.

He qualifies that statement, however, by acknowledging that activity is likely to be “at a substantially lower level [than in the not too distant past]” and that a global recovery should not be expected before 2011.
The paper from ECMSA giving the association’s view of the impact of the credit crunch on European chemicals is published b y the European Parliament alongside other analyses of important sectors for the European economy including automobiles, pharmaceuticals and food.

Henrik is chief economist with Germany’s chemicals trade association, the VCI.