The German Chemical Industry 2030 - Update 2015/2016 including Alternative Scenarios

Please note:
You will find the alternative scenarios of the study both within the full PDF download file (right hand to the cover picture above) and as a separate PDF file in the download section on the top of this page ("Ergänzende Downloads" = "Supplementary Downloads").

Background and Summary

The global economy is faced with new challenges. The growth motor China is stuttering. Large national economies like Brazil and Russia are in recession. Not least, the European Union needs to cope with the refugee crisis and with uncertainty about Great Britain staying in the EU. The debt crisis in Greece is not yet solved, either.

Additionally to these current developments, there are long-term megatrends that influence the global economy. The world population is growing. According to UN estimates, 8.5 billion people will be living on this planet in 2030 (2013: 7.2 billion). This brings a globally rising demand for food, goods and services – and a higher availability of workforce. 90 percent of the population growth takes place in Africa and Asia, while the population is stagnating in industrial countries where societies are ageing fast. The global population growth positively impacts the growth of the global economy but also comes with major challenges for some regions.

Another trend and growth driver is the faster dissemination of technology and knowledge. The technology transfer enables many countries to benefit fast from innovative technologies. In the future, no country alone will be in a position to claim a technological edge for long. This increases the pressure to innovate. Moreover, digitalisation as well as networks and interconnections will fundamentally change the economy in the years to come. Like the steam engine, electricity and computers in the past, now digitalisation is triggering a new phase of the industrial revolution (Industry 4.0). Digitalisation progresses to cover entire value chains and will not stop at chemical companies. This makes cross-sector innovations possible. Such innovations have the potential to widen established and tried and tested business models, but they can also replace them. Thus, the borderline between industry and the service sector is going to blur gradually – this can be observed already today.

Unlike expected by many experts, there will be no shortage in energy and raw materials over the forecasting period. Already since 2014 new production technologies (fracking) and competition between the oil producing countries have brought surplus supplies of oil and gas, leading to a rapid decline of prices for fossil energy sources worldwide. In the medium term, the oil price will rise again. Up to 2030, crude oil remains clearly less costly than had been assumed still in the predecessor study. Overall, this strengthens the competitiveness of chemistry and the growth of Europe.

Against the backdrop of current developments, the VCI updated its study “The German Chemical Industry 2030”. The goal is to describe the future of the industry in a realistic scenario and in a dramatically changing world. The guiding questions of the updated study on the future were: What will the global chemical market look like in the year 2030? And how is the chemical-pharmaceutical industry in Germany getting ready for that?

Dynamic growth in the global demand for chemicals

Over the next years, the global economy will overcome its present weak phase. According to current projections, the global economy will have average growth of 2.5 percent p.a. to 2030. This roughly corresponds to the dynamics in the period from 2000 to 2013 – even though this comparison should be put into perspective due to the financial crisis.

However, as compared with the predecessor study the prospects are slightly less favourable. The global economy will grow less strongly than had been forecasted in the first version of the study (+3.0 percent). According to the new calculations, the long-term growth potential has become weaker, mainly for China and many emerging markets. The updated study assumes lower GDP growth for the USA too. In the impacted countries the growth chances have also weakened for industry and thus for the demand for machinery and chemicals.

To 2030 Germany can benefit from global economic dynamics. The gross domestic product (GDP) will rise by 1.3 percent p.a. to 2030. In the future, the by far largest contribution to growth will come from private consumption which will replace foreign trade as the growth driver of the German national economy. The investment weakness will be overcome gradually too. With 1.4 percent p.a. the growth in industrial production will be somewhat higher than GDP growth.

The various regions have different growth drivers. Population growth, prosperity and thus the demand for everyday products will increase in emerging markets – while topics like energy efficiency, environmental protection and renewable energies will gain in importance as drivers in industrialised countries. The changed demand structure leads to vigorous growth in industrial production and, consequently, to a rising demand for chemicals.

In this setting, here the good news from the study: Chemistry is a dynamic growth market. In the forecasting period the global demand for chemicals will rise by 3.4 percent and thus grow faster than industrial production (3.2 percent) or the overall economy (2.5 percent).

Future chances for the German chemical industry

The global market for chemicals is a dynamic growth market to 2030, with chances for the German chemical-pharmaceutical industry to continue the successes of the past – if the framework conditions in the energy policy in Germany and Europe do not further weaken the competitiveness of the industry.

Competition is becoming more intense. Therefore, in its future production the industry needs to give even more emphasis on research-intensive specialty chemicals and pharmaceuticals, in order to maintain and increase its competitive advantage. The industry will drive forward technological progress, and it will use the chances of digitalisation. Positive features of the German chemical industry are high-quality solutions for exacting customers at home and on all foreign markets. In this manner, the industry will continue to grow also in the future – combining pharmaceuticals, basic and specialty chemicals. According to the new calculations, German chemical production will grow by 1.5 percent p.a. in the forecasting period.

Thus, growth is slightly lower than in the predecessor study. This is mainly because of weaker dynamics of important foreign markets. Moreover, the growth environment has changed considerably for basic chemistry. Raw material and energy costs are high in an international comparison, so that German basic chemicals producers cannot supply the world markets from the location Germany. But integrated production (the so-called Verbund, one of the central strong points of German chemistry) is kept up. German and European chemical markets will be supplied with basic chemicals from German production also in the future.

Changing raw material base

Fossil raw materials – mainly the mineral oil derivative naphtha – will remain the most important input of the industry to 2030, however, with a slightly falling share in the raw material base. By contrast, the share of renewables will rise from currently 13 percent to 18.5 percent (2030).

Major research efforts are needed for a stronger integration of renewables into production. For this purpose, new value chains need to be created jointly with other industries. This is an elaborate exercise which does not progress as rapidly as many had hoped. From the present perspective, a significant substitution of fossil raw materials by renewables is hardly likely to 2030. Availability and prices of renewables will remain limiting factors due to competing uses (food versus raw material).

Rising research spending

Research and development are not only needed for change in the raw material base. In the future, especially global competition will necessitate a faster innovation speed overall. There is also the rising demand for research-intensive specialty chemicals. Against this backdrop, the industry will increase its research spending from 10 billion euros (2013) to 16.5 billion euros in 2030. The increase is lower than had been anticipated in the predecessor study, because of generally slower growth in chemical production in Germany and due to stronger competitive pressure on the research location. Other regions and also emerging markets are investing heavily in their chemical research. In some customer industries, more production and research centres are relocating to Asia. German chemical research partly follows this development.

Reserved investment attitude in the chemical industry

The long-term trend growth is low for investments in the German chemical industry. Since 1991 the industry’s investments in plants and buildings have risen by only 0.2 percent p.a. – in real terms, investments even dropped by 1.6 percent p.a. The reasons are manifold: Firstly, in the past years the chemical-pharmaceutical industry achieved considerable efficiency gains which allowed production growth with fewer investments. Secondly, there was a rising degree of specialisation away from capital-intensive basic chemistry to other chemical sectors where fewer fixed asset investments are necessary.

But the main reason for the reserved investment attitude was the high price level for energy and raw materials in an international comparison. This is an important location factor, especially for the energy-intensive chemical industry. Therefore, many investment decisions of companies favoured sites abroad. Consequently, for years now their foreign investments have been growing much more dynamically than domestic investments. Since 2012 the German chemical industry has even been investing predominantly abroad.

No fundamental changes are discernible in the energy and climate policies, neither in Berlin nor in Brussels. Therefore, the companies will remain burdened with higher energy and raw material costs in Germany also in the future. Frequently changing energy policy requirements and countless interventions in the energy market by the public administration cause persistently high uncertainty in corporate planning – resulting in cautious investments. This situation will last in the forecasting period.

Political Implications:
Intrinsic strengths and a good industrial policy are called for

The update of the 2030 study shows the following: Also in the future, Germany will remain one of the most important chemical industry locations worldwide. But this perspective needs to be worked for strategically. Here the components of a promising strategy for the industry: use the chances of globalisation, focus on specialty chemicals and pharma, launch an innovation offensive, improve resource efficiency, diversify the raw material base, and increase productivity.

The framework conditions under the economic policy are the second prerequisite for the German chemical industry and its products holding their own in global markets. It is true that there are quite positive starting points in Brussels and Berlin with the initiative “Better Regulation” and the alliance “Future of Industry” (Bündnis “Zukunft der Industrie”). But apart from that, very little has improved in the political environment for industrial production. In particular the energy and climate policy remains the proverbial Achilles heal of German industry. This is because energy costs are an important factor in the global competition of locations. The disadvantages of the location Germany with its energy and raw material costs during the forecasting period dampen the possibilities for development of the German chemical industry. Reliable and affordable energy supplies are a crucial issue for the future of the industry location. Therefore, the VCI speaks for a fundamental reform of the German renewable energy act (EEG) in the next legislative period, in order to bring expansion and pricing in an economically feasible and cost-efficient shape.

Furthermore, there is a need for political action also regarding the ability to innovate. The VCI study on paving the way for innovations (“Innovationen den Weg ebnen”) highlights a number of external obstacles that cause unnecessary difficulties in the way of innovative products from the laboratory to the market. Achieving measurable progress in this respect will benefit both companies and customers.

Alternative scenarios: Things can turn out the other way

Wishing to look into the industrial policy scope and to highlight interconnections and, most importantly, for creating a fact base for the political discussion, the VCI and Prognos jointly appraised and assessed the industrial policy alternatives to the “business-as-usual scenario” (basic scenario). A “scenario of chances” describes future development paths in an investment- and innovation-friendly environment, with expansion of innovation promotion by the public administration and in an efficient regulatory framework that strengthens price competitiveness. Next, a “scenario of risks” examines the impacts of a less favourable industrial policy environment, compared with the basic scenario. Inter alia due to an interventionist energy and climate policy, the “scenario of risks” brings rising regulatory costs and more uncertainty for companies in corporate planning.

Sum-up: Need for industrial policy action

The chemical industry has the potential for contributing to a sustainable development in Germany, supporting Germany’s long-term economic success and safeguarding jobs. But this perspective needs to be prepared strategically: This means strengthening the innovation ability of the industry, using the chances of globalisation and digitalisation and working for sustainability.

The industrial policy scenarios highlight starting points for political action. The economic policy framework conditions are the basis for the German chemical industry with its products holding its own on global markets. The scenarios clearly show that it is possible to shape the future. Today’s political decisions influence the growth potential of the German national economy and of industry and chemistry.

Contents

• Global megatrends
  • Growing and aging world population
  • Globalisation is losing in speed
  • Faster dissemination of technologies and knowledge
  • No shortage of energy and raw materials to 2030
  • Environmental and climate protection are gaining in importance worldwide
  • Public debt impairs growth
• Global economic dynamics are losing in speed
• Industrialisation of emerging markets continues
• Chemical industry globally
  • Shale gas brings a renaissance of US chemistry
  • EU chemical industry grows, thanks to innovative specialty chemistry and pharmaceuticals

• Domestic economy gains in importance
• Industry remains the central pillar of the German economy

GROWTH CHANCES FOR GERMAN CHEMISTRY

• The chemical industry remains an attractive employer
• German chemistry: ever more efficient
• Diversification of the raw material base is driven forward
• Higher research budgets
• Reserved attitude lasts in investments

CONCLUSION

ALTERNATIVE SCENARIOS

PROJECT APPROACH AND METHODOLOGY

REGISTER OF CHARTS AND TABLES

The "making of" the stuy

This study was elaborated in close cooperation between the economic research institute PROGNOS and the German chemical industry association Verband der Chemischen Industrie (VCI). The study was largely prepared in 2015; the base year for the forecast is 2013. This corresponds to the current margin of official statistics at the time of model calculations.

The project goal was to update the long-term forecasts for the German chemical industry to the year 2030. Based on the comprehensive and detailed forecast and simulation models of Prognos AG and relying on the expertise from the VCI member companies, regional and sector associations and from European chemical industry organisations, a detailed picture of the chemical industry’s future has been drawn successfully. Like in the earlier study, we approached the forecast in two ways:

• Firstly, with the help of a top-down approach (PROGNOS model “VIEW”), which approaches the chemical industry from the top and represents the macro-perspective. Proceeding from the global megatrends, it enables a detailed forecast of the global economy down to the developments in the individual industrial sectors. This approach adequately takes into account the strong integration and interconnections of the chemical industry.
• Secondly, with a help of a bottom-up approach (VCI-Prognos industry-specific model “Chemistry”). Proceeding from the individual product groups, this micro-perspective enables the taking into account in the forecast of diverging developments inside chemistry and of changes in the competitiveness of chemical industry locations. Furthermore, the industry-specific model “Chemistry” also provides – beside forecasts for production and trade streams – developments for other sector indicators (e.g. employment, research budgets, investments or energy consumption).

The Prognos macro-model VIEW
With VIEW, Prognos AG has a global forecast and simulation model which depicts – in a detailed and consistent manner – the future development of the global economy. The model explicitly covers and models the interactions and reactions between the various countries. For this reason, its informative analytical value goes far beyond the isolated country models with exogenously given, global economic framework conditions. In the recent version, VIEW comprises the 42 most important countries worldwide and thus over 90 percent of the global economic performance.