Chemical industry guarded about its European future

Workers in Map Ta Phut, a petrochemical industrial hub in Thailand [©Solvay photolibrary]

Workers in Map Ta Phut, a petrochemical industrial hub in Thailand. [©Solvay photolibrary]

This article is part of our special report An industrial policy for Europe ?.

The European chemical sector has issued a “very serious” warning about its slumping competitiveness, but refuses to be alarmist just yet, saying shareholders should not worry, that big industrial groups are now global, and less exposed to Europe.

The European chemical industry council (CEFIC), a trade body, has warned about a “decline in EU chemicals sector global competitiveness”, saying “urgent action is needed from policymakers” to help turn around the situation.

A CEFIC-commissioned report, produced by Oxford Economics, shows the EU share of global chemical exports fell from 31% in 1991 to 21% in 2012. This is despite a rise in EU chemical sales, which almost doubled, from €282 billion in 1993 to €527 billion in 2013.

“Due to the erosion of competitiveness, the EU has slipped from number three to four out of seven leading global chemical exporters,” states the report, published on 20 November.

According to CEFIC, the European industry compares unfavourably to the oil and gas-rich Middle East, and to the United States, which are riding on a shale gas boom. Ethylene, the leading chemicals building block used to make plastics, detergents and coatings, is currently about three times more expensive in the EU than in the US, CEFIC explained.

Solvay CEO: ‘Europe needs to react’

“The key factor which explains this loss of competitiveness is access to energy – both as a feedstock and as a source of energy. It means we are investing less because of this gap in competitiveness,” said Jean-Pierre Clamadieu, CEFIC President and CEO of Solvay, who was presenting the report in Brussels last week.

The warning is the latest coming from the European chemical sector, which has long complained about EU environmental regulations – especially the emissions trading scheme for greenhouse gases – for pushing up energy costs.

“We think we are right to worry about chemical industry competitiveness. And we are right to worry because of a key element, which is access to energy,” Clamadieu told EURACTIV in an interview.

“But we have very few proposals on the table and we think it is urgent now that we move with an energy policy that would secure energy cost competitiveness for the chemical industry.”

>> Read: Solvay CEO: ‘We badly need a European energy policy’

Asked by EURACTIV whether shareholders should also be worried and consider selling their stocks in European chemical companies, Clamadieu refused to be alarmist, saying big industrial groups were adapting to a changing global environment.

“Talking to our shareholders, the message is very simple. Taking the Solvay example, we are not a European chemical company, we are a global chemical company. Today, Solvay is exposed more or less equally to Asia, Europe and the Americas– one third of our sales in each of these regions. And second, we are transforming our portfolio to focus on innovative products. So the messages to policymakers and shareholders are not the same.”

In terms of magnitude, the Oxford Economics report found that a reduction in European energy prices would provide the single biggest boost in competitiveness for the chemical sector. Next is encouraging R&D investment, which it said was also critically important.

But Clamadieu is worried that not enough is being done at European level to deal with what he describes as a highly fragmented energy landscape, with each member state pulling in their own direction.

“When we discussed with Mr. Oettinger in the previous Commission, he would make the same analysis of the facts. But have we seen the previous Commission coming up with a European energy policy? No. And when we asked why, the answer was, ‘This is not part of our mission’. Energy mix is the responsibility of the various member states, with little coordination. And the feeling was that the Commission had little ability to put together a policy.”

Cost of regulation hard to quantify

For CEFIC, part of the blame for the sector’s declining competitiveness lies with “the growing cumulative cost of EU legislation” which it says adds to its cost structure and drives resources away from innovation and production into compliance. “The EU added 784 new health, safety and environmental regulations for the European chemical industry in 2004-2012, making a total of 1,724,” the association said in a briefing note.

But the Oxford Economics report was more cautious than CEFIC, however, saying: “We also think that the regulatory burden…are important drivers of competitiveness, but a lack of chemical sector specific data prevented us from rigorously testing this hypothesis.”

It also said higher labour costs in Europe “were associated with declines in competitiveness, but the quantitative effect is not large”.

Another often-cited cause for the sector’s decline is the shale gas boom in the US and global demographic changes which have fuelled demand for chemical production sites in emerging countries instead of Europe.

But here too, the Oxford Economics report was wary of drawing any hasty conclusions: “While these pieces of evidence are suggestive, they do not constitute conclusive evidence of a competitiveness problem in the EU chemical sector, nor do they prove that energy costs (or any other factor such as R&D, regulation, etc.) is an important factor driving national chemical-sector competitiveness.”

The European Commission sought to break with years of inaction on industrial policy when it unveiled a new strategy in 2012, promising a "new industrial revolution".

The strategy's headline goal is to raise industrial activity to 20% of EU gross domestic product by 2020, compared to just over 15% today, taking it back up to pre-crisis levels.

Europe is a world-leader in many strategic sectors such as engineering, automobiles, aeronautics, space, chemicals and pharmaceuticals, the Commission argues, saying it must build on those strengths to relaunch manufacturing.

>> Read our LinksDossier: Europe’s re-industrialisation agenda: A green policy U-turn?

  • 2020: Target date for bringing industry’s share in Europe’s GDP up to 20%

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