Germany Petrochemicals Report Q2 2008

German petrochemicals producers are likely to come under pressure in 2008; due to the cost-push inflationary effects of high oil prices, a strong euro against the US dollar and a slowdown in eurozone growth, according to BMI's latest Germany Petrochemicals Report.

BMI believes that Germany's chemical output will slow in 2008; due to the credit crunch in the US, the appreciation of the euro and high raw material prices. Between 2003 and 2007, Germany's chemical sector recorded above-average growth, but in Q407 there were signs of significant deceleration, with both exports and domestic sales slowing down. In the quarter, chemical output fell 1.6% from the previous quarter, but was still up 1.7% over Q406, as cost prices rose faster than sales prices. In Q407, naphtha prices were up 12.7% over the previous quarter, while industrial electricity prices were up 0.5%, following significant price increases in Q307. At the same time, in Q407 contract prices for ethylene and propylene went up by 1-2% while aromatics prices dropped significantly with benzene and paraxylene prices up 6-15% lower than in Q307. As a result, petrochemical margins came under pressure. BMI expects these trends to continue into 2008, with chemical output set to rise by just 2.1%, compared to 4.3% in 2007, when capacity utilisation rates averaged 84.2%. BMI is forecasting stagnation in the petrochemicals segment, due to lower rates of economic growth in both the domestic and export markets and increased competition from Asian and Middle Eastern producers as a result of an expansion in capacity and the appreciation of the euro.

Germany's total ethylene capacity remained static at 6.22mn tpa in 2007. Basell crackers in Wesseling account for 986,000tpa of the total ethylene capacity, while BP crackers in Dormagen are likely to account for 950,000tpa. The expansion of OMV's Burghausen complex will boost total cracker capacity to 6.91mn tpa by 2010. Meanwhile, PP nameplate capacity is due to reach 2.65mn tpa and PE to 3.84mn tpa by 2012.

BMI's method of risk scoring in the petrochemicals sector relies on dynamic scores that reflect on future growth as well as current capacities and the size of the internal market, along with investment risk assessments of the political, economic and regulatory environments. Germany scores 80.4 points putting it in second place in our Global Petrochemicals Rankings, 2.4 points ahead of China and 12.1 points behind the US. BMI believes that Germany will be overtaken by China in the next one to two years due to the rapid increase in Chinese petrochemicals capacity. Germany's score fell by 1.8 points over the previous quarter due to a slowdown in chemicals output.