The German chemicals and petrochemicals industries grew strongly in H110, but BMI’s latest Germany Petrochemicals Report expects that by Q410, year-on-year (y-o-y) growth will be zero owing to high base effects and slowing demand growth.
The recovery in German chemicals and petrochemicals industries is stronger than BMI had envisaged in the previous quarter, with the German chemical industry VCI reporting production growth of 13% y-o-y in H110 with capacity utilisation of 83% in H110, which is approaching the typical 84-86% rate and well above the 77.9% reported at the end of 2009. Nearly all plants were back in operation and BMI believes that the industry as a whole is operating at a comfortable profit margin with producers better able to pass on rising raw material costs to their customers. Sales were buoyant in H110 with the value of the domestic chemicals market up 16%, to EUR77.7bn, and exports up 18% to EUR45.9bn. Domestic sales of German chemical companies improved 13%, to EUR31.8bn, according to VCI. However, a higher base and the impact of fiscal austerity measures in Germany and across the EU will lead to lower rates of growth in H210.
Domestic petrochemicals end markets are showing significant improvements. Notably, the construction industry in Germany, which represents a major European consumer of PVC, has shown excellent recovery from its precipitous decline at the start of 2009. A decrease of 4.5% in y-o-y growth over 2009 now represents an anomaly in otherwise sustained growth rather than a trend towards collapse. Growth is expected in the sector up until the end of the forecast period in 2014. This is driven by high profile projects along with EU regulations that are resulting in increased sales and movement in the power infrastructure sector.
Meanwhile, the vehicle scrappage scheme in Germany in 2009 had benefitted both domestic and foreign carmakers, with their respectively sales increasing 16% y-o-y and 40% y-o-y. Despite the growth seen in H110, BMI believes that weak consumer demand in the EU will be the main deterrent for the recovery of Germany's auto exports (and hence production) in 2010 and for the rest of the forecast period. Moreover, given that the delivery of vehicles under the scrappage schemes in Western European markets would have ended by the end of H110, we are concerned that this export growth may not be sustained, thereby putting pressure on domestic demand for engineering plastics, particularly PP.
Although we have raised our chemicals output growth forecast from 4.5% to 7.0% and sales growth from 5.0% to 7.0%, we believe that growth will diminish to zero by Q410, with buyers keeping inventories low due to risk aversion. The 2010 GDP growth forecast of 2.0% will almost entirely be driven by external consumption, inventory re-stocking and statistical base effects. We expect German growth to dip back to 1.5% in 2011, before recovering to a trend average of 1.6%. The chemicals industry will follow the broad economic trend.
Germany scores 81.9 points and is placed first in BMI’s Western European Petrochemicals Rankings, 8.2 points ahead of France. BMI believes that Germany’s score is unlikely to change, with no capacity additions planned over the next five years. However, with little new capacity coming onstream elsewhere in Western Europe over the period, it should retain its lead in the region.
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