Growth and Competitiveness
EU27 chemicals output, 7.5% below the previous year’s level
EU27 chemical industry production
Following the COVID-19 outbreak EU27 manufacturing output was up 12.9% during the first half of 2021, compared to the same period of 2020. The EU27 manufacturing sector as a whole has lost 5.7% of its production due to pandemic. The highest loss of production was attributable to automotive, followed by printing, and machinery and equipment.
The January-June 2021 data indicates that Output in the EU27 chemicals sector increased by 7.5% in 2021 compared to the previous year’s level (Jan-June-2020), and 2.2% above 2019’s level (pre-Covid, Jan-June 2019). In June 2021, output in the EU27 chemicals sector was 11% above the 2020’s level. The chemical output is returning to “normal” levels, but challenging times remain for the industry.
A lot of challenges lie ahead as the EU27 chemical sector is supposed to undergo a ‘double twin transition’ to meet the European Green Deal goals, which includes going climate-neutral, circular, digital, while anticipating the reform of the EU chemicals regulatory framework as announced by the Chemicals Strategy for Sustainability.
EU27 capacity utilisation far above its long-term average
EU27 chemical capacity utilisation rate
The dramatic decline in capacity utilization at the beginning of 2020 stems from the spill-over effects of Covid-19 crisis, where both production and capacity utilization have dropped substantially during the first half of 2020.
According to Business Survey data of the European Commission, capacity utilisation in the EU27 chemical sector reached the value of 83.4% in the second quarter of 2021, up from 74.0% reached in the same quarter of last year.
Capacity utilisation was 2.2% above 2019’s level (Q2-2021 vs Q2-2019), and above the long-term average (1995-2019).
Europe at a competitive disadvantage compared to the USA and the Middle East
Ethylene cash cost of regional steam crackers
The chemical industry is energy intensive. Against a stiff global competition, increases in energy costs in Europe relative to our competitors might impact competitiveness. Globally, ethylene is the highest volume building block in the chemical industry. It is the basic feedstock to produce plastics, detergents and coatings, amongst many other materials.
Energy costs are the Achilles’ heel of European industry, especially compared to the United States. The cost difference between the USA and Europe diminished significantly from 2014 to 2017. Making ethylene in Europe was 2.7 times more expensive in 2014. Since then, the situation gradually improved until 2017 (2.2 times in 2015, 1.8 times in 2016, and 1.6 times in 2017).
In 2020, ethylene cash cost in Europe was 30% below the previous years’ level. 2020 shows a significant decrease of the ethylene cash cost in Europe compared to 2019. Less substantial decreases were observed in the USA and Middle East respectively during the same period (11.4%, 15.0%).
The global picture for 2020 carried a clear message: Europe still has a competitive disadvantage compared to the USA and the Middle East. Europe generated the highest ethylene cash cost in 2020.
Key emerging economies grow faster than the EU27 and US
Average chemicals production growth per annum
During the 11-year period from 2010 to 2020, the EU27 chemical industry had no growth rate (0.1%). Production in China grew from 2010 to 2020, attaining 8.1% average annual growth. China is outpacing other emerging economies such as Russia (4.7%), South Korea (2.0%), and India (4.1%).
Emerging economies are outperforming industrial countries in chemicals production. They pushed up the average growth rate of world chemicals production during the 2010-2020-time period. The European Union is lagging behind the main regions in Asia.
The shift of manufacturing to Asia and associated higher chemicals output growth, an ageing population in Europe and the shift of petrochemicals production to resource-rich countries are a few examples. They all point to a declining share of the Europe based chemical industry in global sales. In absolute terms, the industry may continue to grow, but only at a slower pace.
Growth in global demand expected to continue
World chemical sales 2020-2030
The long-term analysis shows that overall growth of chemicals demands and production as well as faster growth in emerging regions is a trend that is expected to continue in the future. World chemical sales are expected to reach the level of €6.2 trillion in 2030.
The EU27 chemical industry is expected to rank third. With a world market share of more than 40%, China holds the top ranking in sales, a position once firmly held by Europe.
Although competition in China’s chemical market is currently intensifying and demand growth is weaker than in the past, China still offers a huge and attractive market, both for chemical suppliers and their customer industries. In the mid-term, European chemical producers – due to their high technological capabilities and innovative products – are expected to benefit from a robust growth trend in China, both in increased exports and via local investments. To what extent depends on the competitive situation in each market segment and the development of final customer markets that rely on the chemical industry – for example consumer chemicals, automotive, electronics, food and nutrition, etc.