Cefic expects EU chemicals growth to slow

Brussels - European chemicals producers will face a slowdown in demand for their products during 2011, warns Cefic, which expects markets to cool after double-digit year-on-year growth in 2010.

In an annual summary forecast of chemical sector economists, the industry group predicts growth of 2.5% next year, and that the EU chemicals sector will post a year-on-year recovery of 10% for 2010.

“We maintain our view from earlier this year that the sharp chemicals rebound in 2009 and early 2010 was driven by inventory rebuilding, support measures, and exports,” said Hubert Mandery, Cefic director general.

Overseas demand has been the main driver of a rapid recovery in European chemicals output in 2010, while domestic demand, although much improved, remains short of pre-crisis levels, noted Cefic.

The latest data show the pace of growth in Europe slowing in 2010 as government economic stimulus fades and underlying demand takes over. Emerging markets continue to see strong growth rates.

Sources of uncertainty include sharp fiscal tightening by EU member states, very strong increases for several types of raw materials and fluctuations in the value of the euro. In non-EU countries, economic policies, including current US monetary policy, could provoke asset bubble fears in other countries.

“If emerging economies including China curb their rapid growth, demand for European goods, including chemicals, would ease,” said Cefic. “But strong economic activity in Asia is currently driving up commodity prices, notably of oil, and destabilising price spikes are possible.”

The European chemical industry has undertaken further streamlining of operations due to the severe recession. Growth in exports in the second quarter indicates these efforts have worked.

Nevertheless, global competition remains fierce as Middle East capacity increases, the relentless expansion of Asian producers continues, and companies in the United States enjoy relatively cheap shale gas.

“Companies have done their homework, have made adjustments and continue to grow output,” said Cefic president Giorgio Squinzi. “In the first eight months of 2010 this enabled Europe?s chemical industry to post a trade surplus of €32 billion and a €42.6 billion global trade surplus in 2009.

“Competitive pressures, especially from overseas competitors, will make it more important than ever for policymakers to set the right framework conditions in Europe and to reduce unnecessary regulatory burdens, which would help European industry grow their businesses.”