In the first quarter of 2010, production levels for the French chemical industry went up 3% quarter-on-quarter. This was the fourth successive increase since the downturn and represents a 15.4% increase compared to production levels in the first quarter of 2009. All sectors within the chemical industry performed better than expected, with Basic Chemicals experiencing the most growth.
Production levels for all chemicals were boosted by a number of factors. Most governments in Europe launched support packages to boost the economy and these played a key role, particularly the car scrappage schemes. Besides this, demand for chemicals remained buoyant from emerging markets, and businesses in developed countries brought their stock clearance programmes to an end. Although the growth rates appear to be encouraging, they are measured from the very low production levels reached at the end of 2008 and the beginning of 2009.
The initial boost in production levels is expected to settle to a more moderate rate of growth during the second half of 2010, eventually reaching a period of zero growth towards the end of the year and the beginning of 2011. This forecast is based on the fact that support packages will have been withdrawn, and on other predictions, namely, that household consumption levels will slow down and industrial production levels will be lower than those quoted in the long-term forecasts determined before the economic downturn.
UIC forecasts 9% year-on-year growth in production volume for 2010 and 2.6% in 2011.
Increased demand from foreign markets
The chemical industry has benefited from the general recovery in foreign trade. Export levels have been increasing regularly since the beginning of the year, resulting in 14% growth in the first quarter compared to the same period in 2009. Most chemicals exported to France are destined for other European markets (66% of total exports in 2009), thus limiting any potentially negative impact from currency exchange rates. For exports beyond Europe, the recent depreciation of the Euro compared to the Dollar gave French exporters a competitive advantage, particularly for exports to emerging markets in Asia, which went up 34.4% in value. This pushed the overall growth rate of chemical exports up by 2.6 points, even though exports to Asia account for only 7.7% of French chemical exports.
The forecast for the value of the Euro does not bode well for exports. Combined with the rise in the cost of imported petroleum (up 19% in Euro but only 11% in Dollars between January and April 2010), the value of the Euro is expected to have a negative impact on French profit margins.
The recovery permeates all sectors
Production levels for Basic Chemicals (Inorganic Products, Petrochemicals and Plastics) made good progress, in turn leading to improvements for sectors further downstream within the chemical industry.
Once clients had stopped clearing their stock reserves, production levels for Speciality Chemicals resumed a path of healthy growth. Demand from industrial clients picked up, particularly from the automotives sector. Support packages offered to the construction industry, another major client of the Speciality Chemicals sector, are expected to have a positive impact later on in 2010 and in 2011. This delay will help to limit the negative impact of the expected slowdown from other client sectors.
Production levels for Soaps, Perfumes and Household Products are expected to benefit from the recovery experienced by the sector’s clients in the detergents industry. However, household consumption levels are likely to remain low because economic and budgetary policies dictated at a European level and unfavourable changes in the job market will have negative repercussions on consumer confidence. Nevertheless, demand from emerging markets is expected to progress at a healthy rate.
Outlook for the chemical industry in Europe
The growth forecast for the chemical industry at a European level is similar to that of the industry in France. After a sharp decline in 2009, the sector has been experiencing a net recovery since the end of 2009. However, government support initiatives will eventually be withdrawn and the outlook for demand from the various segments of the domestic market remains modest, therefore the pace of the recovery is expected to slow down during the second half of 2010 and in 2011. Overall, CEFIC¹ anticipates 9.5% growth in 2010 followed by 2% in 2011.
Annual % change in volume
Soaps, Perfumes and Household Products
Chemical Industry in France
Chemical Industry in Europe
Sources: forecasts from UIC and CEFIC¹.
¹ European Chemical Industry Council