1、Is the state of the chemical industry catalyzing Germanys deindustrialization?Facts and executive perspectives 2024Strategy&This publication has been developed in collaboration between Strategy&,PwCs global strategy consulting business,alongside PwC industry and function experts.Together,we transfor
2、m organizations by developing actionable strategies that deliver results.At PwC,our purpose is to build trust in society and solve important problems.Were a network of firms in 151 countries with over 346,000 people who are committed to delivering quality in assurance,advisory and tax services.Find
3、out more and tell us what matters to you by visiting us at .PwC refers to the PwC network and/or one or more of its member firms,each of which is a separate legal entity.Please see for further 22024Strategy&Strategy&22 July 2020Decision-makers at policy and governmental level and in chemical industr
4、ials need to take short-term actions to boost Germanys competitiveness as a manufacturing countryGermanys competitiveness,in particular,is suffering:not only have profits shrunk by 12%compared to 2018,but investmentsare down(-90%)and incoming orders are at a ten-year lowRegulatory burdens have tight
5、ened dramatically in the EU in recent years,with Germany displaying greater policy uncertaintycompared to US and China,scaring off innovation and investmentEnergy prices are not competitive against leading peers;discussion has focused primarily on electricity prices,whereas the key challenge is natu
6、ral gas and its use as raw materialThe chemical industry has been a driver for historical growth.Now deindustrialization is a great challenge,with chemicals at the forefront of the decline(7.2 bn value-add lost since 2018)Strategy&Sources:S&P,Eurostat,Strategy&analysisHas anyone calculated the full
7、impact for suppliers and customers if the current pace of deindustrializationin the German chemical industry continues?”20243Strategy&Is the state of the chemical industry catalyzing Germanys deindustrialization?Chemical industry executiveStrategy&Strategy&22 July 2020Its common practice to discount
8、 investments in Germany against investments in other countries.”20244Is the state of the chemical industry catalyzing Germanys deindustrialization?Global chemical player executiveStrategy&How has Germanys attractiveness changed for chemical companies in the last 5 years?ChemicalsGermany is facing de
9、industrialization,with the chemical industry at the forefront measured by decline in productionSources:DeStatis,Strategy&analysisBasic metalsPaper and pulpGlassMechanical engineeringAutomotivePharma-21%-19%-18%-16%-14%-10%-5%20245Is the state of the chemical industry catalyzing Germanys deindustrial
10、ization?Decline in production volume since 2018(in%)Strategy&WorldNeither Europe nor Germany can benefit from the global growth and value generation in the global chemical industryFigures comparing 2023 with 2018 dataSources:S&P IHS,Strategy&analysisCross-continental deindustrialization is accelerat
11、ing decision-makers need to find ways to compete in this market environment11%-8%-15%+400bn-38.9bn-21.9bn-47%+9.2bn-3.5bn-5.2bn6%-16%+55.9bn-7.2bn-7.2bnGross outputNet operating profitValue added20246Is the state of the chemical industry catalyzing Germanys deindustrialization?3%-8%-5%EU 27GermanyAr
12、eaStrategy&Strategy&22 July 2020Its naive to believe that well paid jobs will stay.”Is the state of the chemical industry catalyzing Germanys deindustrialization?20247Chemical industry executiveStrategy&Investments are flowing out of Germany at an alarming rate Asset decisions reside abroad and are
13、not made in favor of Europe anymore;investments into Germany have decreased 90%since 2018 Sources:German Federal Bank,Strategy&analysisDirect investments(in bn)02040608002020202120222023-90%Investments from Germany abroadInvestments into Germany20248Is the state of the chemical
14、 industry catalyzing Germanys deindustrialization?Strategy&Strategy&22 July 2020The German Mittelstand lacks the flexibility of larger enterprises and cannot easily de-risk its footprint across key markets.”Is the state of the chemical industry catalyzing Germanys deindustrialization?20249Chemical i
15、ndustry executiveStrategy&An export-oriented German industry can no longer compete in theseglobal growing markets while facing shrinking domestic demand1)Index,2015=100Sources:DeStatis,Strategy&analysis34%57%59%2005 2015 202233%18%19%2005 2015 202260708090002228%18%1
16、4%2005 2015 2022Expected net chemical flows in 2030DomesticForeign62%Foreign sales share in the Germanchemical industry62%Share of world chemical consumption(in%)Incoming orders,German chemical industry1202410Is the state of the chemical industry catalyzing Germanys deindustrialization?Growth over t
17、he past decade was driven by exports,while domestic demand is declining due to deindustrialization 2022 and 2023 are the first years in history with a negative chemical trade balance with China(volume and value)The export“cash cow”can no longer counterbalance depleted domestic marketsStrategy&Strate
18、gy&22 July 2020Why would I wait for energypromises made in Germany,if I can contract already today on much better conditions in China,the US,or Canada?”Is the state of the chemical industry catalyzing Germanys deindustrialization?202411Chemical industry executiveStrategy&Energy prices in Germany rem
19、ain higher,compared to other key manufacturing markets for chemicalsNote:for European countries,based on Eurostat data on industries with greater than 150 GWh annual electricity and 1100 GWh(band I6)natural gas consumption.Electricity prices for European countries are calculated by the IEA including
20、 the max.possible state aid price compensation,assuming a consumption benchmark of 0.8.Prices for the US,Canada,and China are average reported prices;prices might differ for individual regions/industries depending on consumption levelsSources:IEA,EIA,Eurostat,Hydro Qubec,Enerdata,Strategy&analysis05
21、1015 High deviation in energyprices amongst key players in the chemical industry Low gas prices in US and Canada due to cheap domestic production Europe and Germany in particular rank top,with the highest electricity and natural gas prices for industrials Given the large gap to the top producing cou
22、ntries,it remains questionable how Germany can remain competitive in the long-term051015x2Industrial electricity prices(2023e ct/kWh)Industrial gas prices(H1-2023,ct/kWh)Commentx4.5202412Is the state of the chemical industry catalyzing Germanys deindustrialization?Strategy&The public focus on electr
23、icity with the“Brckenstrompreis”is only accounting for part of the picture in the current crisisAug 18,2023Yes.green electricity at affordable and predictable prices is key for a successful transformation away from fossil energyHowever,.it only accounts for 19%of the current energy mix,and energy so
24、urces not only provide power or heat,but essential raw materials for the chemical industryAug 29,2023May 5,20232022(in PJ)Press clips on“Brckenstrompreis”Energy mix,chemical industry202413Is the state of the chemical industry catalyzing Germanys deindustrialization?BMWKbdewDIW BERLINVCIStrategy&Notw
25、ithstanding the public debate around energy,the use of natural gas as a raw material is even more at the forefront of the current crisis1)Major chemicals 500 kt/a,rounded volumes in 2018Source:Strategy&analysis11%of base chemicals are directly based on natural gas30%of base chemicals are indirectly
26、or partially based on natural gasEnergyRaw material20182022-34%-17%Sustainable alternativeslike green H2or biomass willnot reach substantial adoption in the foreseeable future-45%-43%-42%-39%-37%-35%1,700 kt/aNitric acid 5,200 Mm3/aHydrogen 2,700 kt/aAmmonia 600 kt/aCarbon black1,200 kt/aFertilizer
27、1,100 kt/aMethanol Entire value-chains at riske.g.,the fertilizer industry,crucial for secure food supply,is highly dependent on ammoniaNatural gas usage(mPJ)Majority of products impacted are gas-based1Comments202414Is the state of the chemical industry catalyzing Germanys deindustrialization?Strate
28、gy&Strategy&22 July 2020Is the state of the chemical industry catalyzing Germanys deindustrialization?202415Global chemical industry executiveGlobally,there is no other country across our markets where we are experiencing such a level of uncoordinated,inconsistent,and disruptive regulation along the
29、 value chain.you might conclude we are not wanted here anymore.”Strategy&-48%Regulatory framework conditions pose further obstacles for Germany as a manufacturing location,compared to the global competitionEconomic policy uncertainty,method based on Baker,Bloom and Davis(2016)“The government is ampl
30、ifying the current crisis with regulations and unreliability you can find greater certainty internationally.”-Senior executive,chemical company“The incentives for innovation are insufficient and too complex.Small companies shy away from grant applications as they are too laborious.”-CIO,construction
31、 material company“We face a critical lack of knowledge regarding new regulations,even among experts,as these are missing clear guidance on how to be applied.”-CEO,metal fittings producer Economic policy uncertainty for Germany was lower than for China and the US in 2020 Since then,uncertainty has sp
32、iked in Germany Especially in Germany,well-intended regulatory requirements have maximizedthe cost of bureaucracy for industrials Recent studies show that the regulatory environment,coupled with increased bureaucracy,is one of the top 3 reasons for delayed transformation efforts2020202120222023-81%E
33、conomic policy uncertainty(index,100=2001)1Market voicesKey insights202416Is the state of the chemical industry catalyzing Germanys deindustrialization?Strategy&continue and prioritize operational excellence initiatives to capitalize on existing assets,leverage best-of-breed across industries assess
34、 and leverage product portfolio and international assets,to counterbalance domestic downturns pursue energy transformation,and foster energy management and strategic partnerships to build up resilience against the volatility of energy and raw material costs secure public funding available for transf
35、ormationKey implications202417Is the state of the chemical industry catalyzing Germanys deindustrialization?Strategy&Now is the time for decision-makers in chemical companies to Strategy&Decision-makers in governments and public institutions on the other side should intensify their efforts to 202418
36、Is the state of the chemical industry catalyzing Germanys deindustrialization?support private investments by reducing uncertainty through long-term strategies for predictable energy prices,and clear and understandable regulations(Chemical Roadmap 2040)act on the technological realities and real-worl
37、d implications of existing and new regulation provide broad innovation funds that do not discriminate against the German Mittelstand through excessive bureaucratic hurdles instead of offering island subsidies to individual major playersKey implicationsStrategy&Strategy&22 July 2020Michael Weiss Part
38、ner at Strategy&A full calculation of the outcomes for the German economy,based on its current trajectory,has not been done yet at the political levelWhen constructing business cases on asset investments,many firms are incorporating a large discount on the German marketThe German“Mittelstand”lacks t
39、he flexibility of larger enterprises,which can more easily relocate production to China or the US202419Is the state of the chemical industry catalyzing Germanys deindustrialization?We are at a tipping point while deindustrialization is at full speed.Decisions in the next 3-5 years will determine the
40、 future relevance of this industrial backbone for Europe,but especially Germany.Joint actions by decision-makers in governments and industry will be key for a long-term perspective.”Strategy&Your contacts202024PartnerPwC Global Head ChemicalsPartnerDirectorMMichael WeissDr.Sebastian HockChristian Br
41、andDr.Volker FIs the state of the chemical industry catalyzing Germanys deindustrialization? 2024 PwC.All rights reserved.PwC refers to the PwC network and/or one or more of its member firms,each of which is a separate legal entity.Please see for further details.Disclaimer:This content is general information purposes only,and should not be used as a substitute for consultation with professional advisors.Thank you
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