30
AUG
2024
Important parts of the German chemical industry – the third largest industrial sector in the Federal Republic of Germany – are increasingly under pressure. According to a report by the Handelsblatt, this applies above all to basic chemicals, such as the production of mass plastics such as polypropylene and polyethylene. The reason is, on the one hand, the increased natural gas prices, which no longer reach the record highs of 2022, but are still significantly above the long-term average value of the years up to 2020; since liquefied gas is more expensive than the pipeline gas, which was previously purchased mainly from Russia, they will probably never reach their once low level again.[ 1] On the other hand, it is noticeable that China has massively increased production. For polyethylene, for example, if Chinese demand increased considerably faster than supply from 2015 to 2019, the resulting construction of new plants had increased supply so rapidly that it significantly exceeded Chinese demand - also because of the Covid-19 pandemic - and was now increasingly exported. German companies have also participated in the construction of new production facilities, in particular BASF, whose new joint location in Zhanjiang, southern China, with the largest individual investment of BASF with ten billion US dollars [2], is also produced polyethylene.
Now it turns out that the cheaper Chinese chemical products are decreasing market share to the production of German companies that have become more expensive - also in Europe. In the years from 2017 to 2023, EU chemical imports increased from a volume of 107 billion euros to a value of 238 billion euros; a rapidly growing share came from China. The share of basic chemistry in imports increased particularly sharply.[ 3] In Europe, the profit margin of the basic chemical manufacturers is now falling, if production is still profitable in competition with the lower Chinese prices. BASF, for example, has already shut down parts of its plants, and there are now, as reported, "further plants are about to be closed". According to the market research company ICIS, almost 40 basic chemical sites worldwide are threatened with closure or have already been closed. "The focus," it says, "is clearly on Europe: more than half" of the closures are "the EU and Great Britain". 4] According to this, the US plastics manufacturer Trinseo wants to close a site in the northern German Stade, while the US company Celanese intends to reduce its production in Hamm-Uentrop. Closures are also reported from France, Spain and the Netherlands.
Germany's second largest industrial sector is also reporting growing difficulties: mechanical engineering, which has long been one of the largest profiteers of the Chinese business. The People's Republic of China is still the second largest export market for German machine manufacturers; however, the value of German machines sold to China has stagnated at around 19 billion euros per year since 2018, while Chinese mechanical engineers in particular continue to strengthen. These have built up "enormous production capacities" - the huge Chinese market makes it possible - which would allow them to conquer the international markets with their exports in the long term, explains Karl Haeusgen, President of the Association of German Mechanical and Plant Engineering (VDMA). 5] Not only in China, but also in third markets, they would increasingly become dangerous competition for German machine builders. In the meantime, around 61 percent of all VDMA member companies expected that their competitive situation would be average, perhaps even worse in just five years, it is said. 6] Haeusgen warns that the German industry can no longer afford price wars "on less important third markets" and may have to "give up such markets completely" - a stredying back.
German industry is increasingly recording losses on export markets caused by increasing exports by Chinese companies. For example, Germany's market share of global exports of industrial plants decreased from 16 percent in 2013 to only 15.2 percent in 2023 - a consequence of the fact that China's share also increased from 14.3 percent to 22.1 percent.[ 7] While the Federal Republic's share of global car exports in 2013 was still 22.3 percent, it was only 20.7 percent in 2023, while China's share grew from almost zero to nine percent, with a rapidly rising trend, especially in electric cars. The automotive industry, whose sales are diminished by Chinese competition, is Germany's most important industrial sector, ahead of mechanical engineering and chemistry. With regard to the shrinkage of the German export share in all three leading industries while simultaneously growing the Chinese share, observers are already speaking of a comprehensive "China shock". 8]
In order to secure at least the EU internal market for the German or European automotive industry, the EU Commission is currently preparing punitive tariffs on the import of electric cars from China.[ 9] VDMA President Haeusgen complains that out of "fear" of China's reactions, customs duties have been waived in mechanical engineering for too long; this is "blue-eyed".[ 10] As reported, the rating agency S&P assumes with a view to the development of the German or European chemical industry that "the calls for protective tariffs for the EU market could also become louder in this industry". 11] But even if it were to succeed in stabilizing the shares of German or European industry in their home market, the problem remains that China is superior in third markets. There is "no political panacea" to ensure the competitiveness of German companies on third markets, states Noah Barkin, an expert at the Rhodium Group: German companies threaten to be displaced from many of these markets within a few years. 12] "We are worried about the German export model," Rolf Langhammer, an expert at the Kiel Institute for the World Economy (IfW), recently admitted: "It is not excluded that this model, as we know it from the past, will come to an end in the coming years."
[1] Bert Fröndhoff: China's exports exacerbate the crisis in the chemical industry. handelsblatt.com 29.08.2024.
[2] S. on this collateral damage in the trade war.
[3], [4] Bert Fröndhoff: China's exports exacerbate crisis in the chemical industry. handelsblatt.com 29.08.2024.
[5], [6] Sven Astheimer, Uwe Marx: Mechanical engineering is in the China trap. faz.net 13.07.2024.
[7], [8] Dana Heide: German industry threatens the China shock. handelsblatt.com 22.08.2024.
[9] S. on the way to the penal customs battle.
[10] Sven Astheimer, Uwe Marx: Mechanical engineering is in the China trap. faz.net 13.07.2024.
[11] Bert Fröndhoff: China's exports exacerbate the crisis in the chemical industry. handelsblatt.com 29.08.2024.
[12], [13] Dana Heide: German industry threatens the China shock. handelsblatt.com 22.08.2024.