PRESSRELEASE

3 July 2008

Statement to the press – Professor Dr Ulrich Lehner,

President of Verband der Chemischen Industrie (VCI),

3 July 2008, Frankfurt

(The spoken word takes precedence)

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>> German version

Ladies and Gentlemen.

The upward trend in the German chemical industry continued in the 1st half 2008,irrespective of the difficult environment – but growth was less dynamic than last year. The turbulences of the global economy have reached the chemical industry, too. Growth has clearly slowed down in major customer industries of chemistry.

This means in figures: In the 1st half 2008 the chemical output rose by 3.0 percent against the first six months of the previous year. Compared with the 1st half of 2007, the growth rate thus exactly halved.

Chemical sectors

Trends varied in the individual chemical sectors in the 1st half 2008.

In the 1st half 2008, growth of just under 2 percent was recorded for basic chemicals as a whole -compared with the 1st half 2007: The output of inorganic basic chemicals rose by 1 percent, whereas the production of petrochemicals increased by 2.5 percent. The polymer output went up by 1.5 percent.

Trends were less favourable for fine and speciality chemicals and for consumer-related chemicals. With an increase by 0.5 percent, the output of specialty chemicals was more or less at the level of the previous year. Producers of detergents and personal care products achieved only 1.0 percent growth. This reflects the reserved behaviour of consumers.

The by far strongest growth was recorded in the output of pharmaceuticals. Growth rates were no longer in the double-digit range like last year, but with 7.5 percent this sector saw the highest growth within the chemical industry.

Prices

Since the beginning of 2008,prices for oil and gas once more rose significantly. The strong euro somewhat cushioned this price increase for the German chemical industry. All the same, this burden is now much heavier. Companies were only partly able to pass on higher raw materials and energy costs to their customers. In the 1st half 2008 the prices for chemicals were, on average, 3.5 percent higher than one year earlier.

Sales

Because of the price development, there was a stronger increase in total sales than in volumes in the German chemical industry in the 1st half 2008: Total sales went up by 5.5 percent to 88.9 billion euros. Foreign sales improved somewhat more than domestic sales.

Foreign sales rose by 6.0 percent to 50.2 billion euros. Domestic sales went up by 5.0 percent to 38.7 billion euros.

Exports and imports

In the 1st half 2008 exports – this term includes foreign sales of chemical companies, re-exports and chemical exports by other industries –increased by 11.5 percent to 70.5 billion euros. Up until now, the strong euro and the weakness of the US economy have not directly impacted our export business.

Imports did not rise as strongly as in the previous year. With 47.8 billion euros, they were 6 percent higher than in the 1st half 2007.

In the 1st half 2008 German chemical companies thus contributed some 22.7 billion euros to the export surplus of our country.

Employment

Employment in the chemical industry fell slightly. In the 1st half 2008 the number of persons employed in the German chemical industry averaged 439,000, so that a drop by 0.3 percent was recorded compared with the situation one year earlier.

Investment

In 2008 the companies will increase their investments by an estimated 5.0 percent to 6.8 billion euros – with rationalization and replacement investments as well as capacity expansions. Due to the threatening costs of an emission tradingsystem (ETS) and because of possible shortfalls in electricity supplies, many companies are reviewing their investment plans for the subsequent years.

As in previous years, also in 2008 German chemical companies will make considerable investments abroad. In order to be closer to customers, production capacities will be further expanded – mainly in Asia. This also helps secure Germany as a location of industry.

Outlook

In the 2nd half 2008 growth in the German chemical industry will further flatten. We think that the impacts of extremely high raw material and oil prices, the strong euro and the less favourable economic situation in the USA will make themselves felt more heavily in the German chemical industry in the months to come, especially in the form of weaker business with our industrial customers in Europe. But we believe that the industry will not experience a slump. Consequently, the demand for chemicals will remain more or less stable. Helpful elements in this context are the pharma business, which is not influenced by cyclical developments, and the economies in Asia which continue to grow dynamically. Against this backdrop, we are expecting for the year 2008 as a whole a chemical output growth by 2.5 percent,confirming our forecast given in December 2007 for the overall year 2008. With extremely high energy and raw material costs, producer prices will probably rise by 3.5 percent. Overall sales of the chemical industry will improve by 5.5 percent. Foreign sales should grow somewhat more strongly than domestic sales.

International competitiveness of the German chemical industry

Ladies and Gentlemen:

Raw materials and energy are becoming more and more expensive. The euroburdens the competitiveness of industry. The US economy is on the brink of recession. Only a few years ago we would have gone to a press conference with much more pessimism in such an adverse situation. Today we can say: Irrespective of all this, we will achieve 2.5 growth in 2008, based on a high level.

The current figures clearly show that the German chemical industry has become more robust than it was in the past in comparably difficult conditions.

Furthermore, since the beginning of the upswing in 2003 we have been observing much more dynamic growth of over 4 percent in the German chemical industry, compared with the other chemical industries in Europe where the average growth has amounted to only 2.6 percent. We conclude from this that the German chemical industry has gained in international competitiveness, for the following reasons:

1.Companies have benefited to a particularly high degree from growth in Central and Eastern Europe.

2.Corporate structures have become slimmer and more cost-efficient.

3.Companies have increased their innovative strength.

The German chemical industry benefits from proximity to Central and Eastern Europe

Our traditional strength was and is the export business. The lion's share of our exports has always been going to customers in Western European countries. But over the last few years a further market has been gaining enormously in importance for our export activities, namely Central and Eastern Europe. The German chemical industry benefited to a particularly high degree from the direct proximity to the new EU Member States. The vigorously growing industries in Central and Eastern Europe developed such a strong demand for chemical products that this demand could be no longer fully covered by local chemical production. Over the last years, German chemical exports to Central and Eastern Europeclimbed at double-digit rates. In 2007 Germany exported chemicals worth over 16 billion euros to that region, accounting for over 12 percent of total chemical exports from Germany.

Restructuring of companies

A further success factor is the consistent restructuring of companies: Broadly positioned, diversified large enterprises turned into slim, flexible and focused companies. Now business divisions are operating largely independently. Those parts of companies,which did not fit in the core activities, were sold. Within the core business, mergers and acquisitions became increasingly important –alongside organic growth. Product portfolios, too, were adapted to the new demands of global competition.

Furthermore, many companies optimised their structures and in-house processes in such a manner that production costs in Germany were reduced considerably. This restructuring process is not yet completed. It involves strong efforts, but it is necessary, because this is the only way for the German chemical industry to meet the high expectations of staff as regards rising salaries and job security. For example, this spring the social partners in chemistry agreed a collective pay increase of altogether 7.7 percent for the next two years. Moreover, the collective agreement "Working life and demography" was concluded. This agreement comprises, inter alia, provision measures and the use of flexible instruments for smooth transitions between education, working and retirement phases. We can afford such agreements only if we use all possibilities for efficiency increases inside the companies. This is also the only option to fulfil the investors' expectations of above-average returns in chemistry.

More innovative strength

From my viewpoint, innovations from our companies are the most important factor for competitiveness. Neither the Eastern European market nor corporate cost optimisation inside our companies would have helped us if the products from our competitors had been superior. Innovations have a key role for the success of German chemical companies.

Companies have considerably increased their research budgets. This holds true especially for the pharma sector. Back in the nineties, on average 2.0 billion euros per annum were spent on research and development of new drugs. By 2007 this figure increased to 5.7 billion euros. This pays off: Since 2003 lasting successes have been achieved in pharmaceutical production, with above-average growth.

But the other chemical sectors are doing a lot, too. The future holds challenges for us. All of us must save resources and energy, we want to protect the climate and,at the same time, we want to improve our quality of life. To achieve all this, we in chemistry need new technologies, even more efficient production processes and even better products. Here, especially nanotechnology, biotechnology and catalysis offer great chances.

For example, with the help of nanotechnology, chemical companies are doing research into novel solar cells based on semiconducting polymers. These materials are as elastic and as thin as clear plastic folders. In future, they could be practically rolled onto surfaces such as rooftops, facades, windows or awnings. Quite conceivably, they could supply vehicles from their roofs with electricity, or they could become foldable substitutes for mobile phone chargerswhen "on the move". These novel solar films are much less costly to produce than conventional solar cells, and they will offer more versatile uses.

Resorting to biotechnology, companies are trying to make plants produce pharmaceutical active substances such as,for example, vaccines against influenza or antibodies for cancer therapy. Biotechnology is also in strong demand for the further development of renewable resources into genuine alternatives to fossil raw materials.

Further hopes are pinned on catalysis. With the help of catalysts, hydrogen in fuel cells can be converted into energy. In future, fuel cells could play an important role in supplies of residential houses – because they can generate simultaneously electricity and heat "at home". This is much more efficient and climate-friendly than oil, gas and electricity from power stations.

German chemistry bets on cooperation in research efforts: Cooperation with science, within the chemical industry and with customers. This cooperation is one of the outstanding strong points of Germany as a chemical industry location. Cooperation is frequently made easier by geographic proximity inside chemical parks or regional industry clusters.

German chemistry – again no. 3 in the world?

Ladies and Gentlemen:

All these factors have contributed to a situation where the German chemical industry is better positioned today than it was back in the nineties. Our industry will firmly continue on this path. This means:

§Further use of chances abroad,

§further efficiency increases in corporate structures, and

§creating the basis for further growth through innovations.

In the nineties, the German chemical industry grew, on average, by 2 percent per annum. Now we think that more growth is possible.

We believe to be able to achieve an average output growth of 3 percent per annum in the German chemical industry, up to the year 2020. In doing so, Germany could regain its position among the top 3 of chemistry nations, following the USA and China.

This requires considerable efforts of companies, as I have already explained sufficiently. But we can succeed only with the necessary support from the political side. It is imperative to continue and to further develop the reform policy of the federal government.

Politicians can do much to strengthen Germany as an industry location:

We are increasingly worried about the lengthy discussions on investments in industrial infrastructure. Whoever wants to build today a new industrial plant, a power station or a pipeline must expect considerable resistance from society – unless such investments are made inside existing industry or chemical parks. This problem is aggravated by emerging shortfalls in electricity supplies in the years to come, as was expressly highlighted by the German Energy Agency. Accordingly, as early as from 2012 not enough power plant capacity will be available to cover the electricity demand at peak demand times.

Undeniably also we - as companies - must do our bit to overcome reservations about industry projects. This means explaining why a new construction is necessary and what it means for jobs and incomes in the region. And we must look into the concerns of neighbouring residents regarding the safety and environmental compatibility of plants. It is also up to us to present convincing concepts. But we need support from the political side, too, in order to improve the acceptance of new industry establishments. I am convinced of the following: If we together can clearly show what industry stands for in this country, we will enhance the appreciation given to industry in society.

From my view, the plans of the EU Commission for an emission tradingsystem from 2013 are one of the major threats to our growth scenario. The chemical industry will be faced withimmense costs. As early as in 2013, the financial burden for German companies alone will amount to over 1 billion euros – and by 2020 this burden will rise to almost 2 billion euros annually.

Here, it is overlooked that the chemical industry is a key to successful climate protection. Already now a wide range of products contribute to more efficient uses of energy in chemical plants, in other industries and by consumers – avoiding greenhouse gases.Throughout their useful life, many of these products clearly save more energy than had been needed for their production. Therefore, it is incomprehensible why the European Commission wants to put such a heavy burden on the chemical industry: Our competitors in Asia or in the USA will have obvious cost advantages. Production in Germany and in Europe will become less profitable, and investments will be made in other parts of the world. Therefore, we urge the political decision-makers not to put an excessive strain on industry where ETS is concerned.

Ladies and Gentlemen:

At present, the German chemical industry is well-positioned internationally. It has found back to its strength and worked for and achieved advantages over major competitors. We must keep this up. We can succeed in increasing our trend growth to 3 percent. This is good for the employment market, good for incomes and for the innovative ability of our country. But in order to reach this goal, joint efforts of companies and politicians are needed.

We are ready.