Germany’s injured chemical industry sparks concern in Berlin –

The deteriorating state of Germany’s chemical industry is worrying the highest political level, as the German government prepares its €200 billion aid package for households and businesses.

The chemical industry is closely tied to Germany’s industrial fabric, beginning with the invention of synthetic dyes in the late 1800s. Today, chemicals account for 10% of German exports and the country is home to the world’s largest chemical company, BASF.

But while industries like steel, aluminum and paper have so far managed to ride out the energy crisis, the chemical sector has been hit hard.

The production of the chemical industry, which is integrated into many industrial processes ranging from fertilizers to plastics, sharply decreased in 2022. A November poll by the German Chamber of Industry and Commerce found that more than 25% of companies in the chemical industry had reduced production.

The straw that broke the camel’s back fell in late October when BASF announced it would “permanently” scale back operations in Europe, citing rising energy costs and regulatory concerns.

For German political leaders, the announcement came as a shock.

“Industry is part of the culture and the way we live in Germany,” Chancellor Olaf Scholz said during a visit to a BASF factory on November 1.

On the same day, Vice-Chancellor Robert Habeck was visiting the Wacker chemical plant in Saxony, which manufactures polysilicon used in solar panels. Until the energy crisis is resolved, “the state must ensure that the economic substance holds,” promised Habeck.

The chemical sector is particularly exposed to rising energy prices.

“The costs of electricity, oil and gas represent around 12% of production costs in the chemical industry”, a proportion which rises to “over 70%” for chemicals such as ammonia or chlorine , explains Wolfgang Große Entrup, CEO of the company. German Chemical Industry Association VCI.

And over the past two years, “energy costs have more than quadrupled,” he told EURACTIV.

Large chemical groups such as BASF have so far been largely protected from rising energy prices. Large companies, which have dedicated energy trading desks, can cover their costs through long-term buying strategies.

Wacker, for example, still receives 50% of its energy through low-cost, long-term contracts at its production site in Saxony.

But these contracts are slowly coming to an end. And “The situation will get worse in the coming months when existing supply contracts expire,” said Wacker CEO Christian Hartel.

State aid package

The 200 billion euro aid from Berlin, announced at the end of September, could be a relief for the German chemical industry.

Under this scheme, 25,000 large consumers will be eligible for a gas block tariff from 1 January 2023. Companies that benefit from it will pay 70% of their gas consumption, calculated on consumption for the previous year. , at a subsidized cost of €0.7 per kilowatt hour (kWh).

But German chemical giant BASF has publicly declared its intention do not applyeven if she could potentially earn billions by reselling its gas quota.

And EU competition authorities will also be watching. Indeed, the aid package has sparked widespread concern in Europe, with other EU countries saying it could kick off a grant race that only Germany can win.

Speaking in Dresden on November 1, Habeck hinted at a compromise between European competition authorities and the German government. Businesses that compete in the EU single market may be subject to different rules, he suggested.

There is also talk of linking state aid to job guarantees. “The fact that job retention should be listed separately as a goal shows the seriousness of the situation,” VCI’s Entrup explained.

An expensive cup of tea

During his visit to the Wacker chemical plant, Habeck was again urged to do something about rising energy costs.

Wacker is the “last polysilicon producer in the Western world” and a key part of the solar PV value chain, company CEO Christian Hartel noted, hoping to strike a chord with Habeck’s green sensibility.

But when Hartel demanded an electricity price of €0.04 per kilowatt hour, Habeck’s face changed.

The Ministry of Finance is in charge of the money, he replied. And capping electricity prices would be “an expensive cup of tea”, he said.

Germany heading for stagflation in 2023

As energy prices continue to weigh on businesses and consumers, the German Economy Ministry on Wednesday (October 12th) predicted a contraction in the country’s GDP while inflation will remain at near record levels, a phenomenon known as “stagflation”.

[Edited by Frédéric Simon]