UniCredit Bank Austria Industry Report:
The chemical industry lost momentum in 2022 – cost burden remains the biggest economic challenge
- Chemical production in Austria has been in decline since September; in 2021, production in the industry increased by 5.8 percent and sales by around 26 percent to EUR 16.7 billion
- Sales growth in the industry is slowing, but should still reach at least 20 percent in 2022
- Cost burden: The proportion of the chemical industry’s revenue spent on energy costs has risen from 3 percent in 2019 to about 10 percent in 2022, totalling more than EUR 2 billion (2019: EUR 500 million)
- Successes in foreign trade ensure a stable share of the global chemical trade
- The chemical industry is an important factor in achieving a climate-neutral economy due to the supply of primary products in the field of renewable energy
The production of chemical products, or more simply the chemical industry, not only managed the financial crisis of 2020 better than the industry average, but also achieved above-average sales growth in 2021 and 2022. Growth was driven by the sharp rise in producer prices. "Over the last few years, the Austrian chemical industry has managed to pass on a considerable proportion of the sharp rise in raw material and energy costs in its product prices. That being said, the cost burden will likely remain the biggest economic challenge for the industry beyond 2022," says Günter Wolf, economist at UniCredit Bank Austria.
In 2021, production in the industry increased by 5.8 percent and sales by around 26 percent to EUR 16.7 billion. Plastics production made an above-average contribution to sales growth. The sector also contributes about half of total industry turnover. Man-made fibres accounted for a further 12 percent of sales. In addition, the domestic chemical industry produces a wide range of products, many of which are technologically sophisticated, thereby securing its international competitiveness.
The chemical industry is ending 2022 with a slight decline in production and a price-driven increase in sales
Industry growth slowed gradually in 2022. There was a 1 percent increase in production on average over the first ten months of the year, with production in the industry falling year on year in September and October, according to the most recent figures. At the same time, the chemical industry recorded average sales growth of 25 percent by October, driven by an average increase in producer prices of 29 percent. An above-average increase was seen in the prices for fertilisers and agricultural chemicals, which had, by October, become an average of 69 percent more expensive on the Austrian wholesale market, and also technical chemicals, which had become 45 percent more expensive.
As was foreshadowed by the – mostly pessimistic – production expectations of businesses, most recently in November, the chemical industry cooled even further over the last few months of 2022. The decline in production is likely to worsen and sales growth has slowed. Although the chemical industry’s supply chain issues did improve somewhat in the fourth quarter of 2022, at the same time, more than one-fifth of businesses cited the shortage of skilled workers and the worsening situation with regard to orders as their main obstacles to production. Following the very good result of the previous year, the chemical industry is expected to end 2022 with a slight decline in production and an even greater increase in sales in the region of 20 percent.
The proportion of the chemical industry’s revenue spent on energy costs rises from 3 percent to 10 percent in 2022
Despite producer prices in the chemical industry rising by, on average, 29 percent by October 2022, it is unlikely that businesses will have been able to fully offset skyrocketing energy and raw material costs. The cost burden remains the biggest economic challenge for the chemical industry beyond 2022. The industry is facing persistently high energy prices, but also needs to make significant investments in the development of climate-friendly production processes and products in order to meet climate protection targets.
The chemical industry has an above-average energy intensity and accounts for just under a quarter of the total energy consumed by domestic industry (104 petajoules out of 460 petajoules in 2019). Petroleum products account for around half of the energy consumed, natural gas around 30 percent and electricity 13 percent. In 2019, the chemical industry spent around EUR 500 million, or 3.3 percent of its revenue, on energy bills (compared to 1.8 percent for industry as a whole).
Individual sectors within the chemical industry were hit even harder, such as producers of industrial gases, who spent 15 percent of their revenue on energy costs. Assuming that the shares of energy sources in energy consumption have remained unchanged, the proportion of the chemical industry’s revenue spent on energy costs increased to around 10 percent (totalling more than EUR 2 billion) in the period from 2019 to 2022 as a result of price increases.
According to current quotations on futures markets, 2023 should expect to see electricity and gas prices at least as high as those seen in the fourth quarter of 2022. Energy sources are not expected to drop in price until 2024, remaining well above the low level seen in 2019/2020 even beyond 2024. Regardless, all energy-intensive industries with higher natural gas and electricity consumption will continue to face significantly higher energy costs over the coming years.
Successes in foreign trade ensure a stable share of the global chemical trade
Since many chemical processes and products are only efficient in mass production, foreign trade deficits in this area are almost inevitable and are not an indicator of the industry’s poor competitiveness. The trade deficit amounted to EUR 646 million in 2021. The main imports are chemical raw materials, cosmetics and other care products. At the same time, the successes in exporting man-made fibres in particular have for years ensured that the foreign trade deficit does not grow any faster. The export surplus in this product group amounted to EUR 851 million in 2021. In addition, producers of speciality chemicals, plastics and engineering plastics also achieved higher export growth and, in some cases, helped to improve the foreign trade balance.
Overall, the competitive strength of the Austrian chemical industry is demonstrated by the fact that it accounts for 0.9 percent of all imported chemical products worldwide (excluding pharmaceuticals and including plastics), a figure that has remained stable for some time now. The export successes also underscore the favourable position the chemical industry occupies in a national industry comparison, which can be seen in the sector's long-term contribution to industrial value added, which has increased slightly from 4 percent to 5 percent, for example.
The chemical industry is an important factor in achieving a climate-neutral economy
The key role the chemical industry plays in climate protection is due to the fact that chemical products are essential building blocks of the economy. The chemical industry also supplies essential primary products for CO2-saving technologies in the fields of renewable energies, mobility and residential construction (for example insulation materials, lightweight construction materials or efficient lighting systems).
At the same time, however, the chemical industry is responsible for 9 percent of all greenhouse gas emissions by the Austrian industrial sector as a whole. "Austria's chemical industry does produce fewer emissions when compared to the EU as a whole. At 850 tonnes per million euro of value added, greenhouse gas emissions are around 16 percent lower than the EU27 average. However, the goal of climate-neutral production by 2050 still requires considerable investment from the industry," Wolf concludes.
Enquiries
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0)5 05 05-41954;
Email: guenter.wolf@unicreditgroup.at