European Chemical Industry: Cefic Chemicals Trends Report (CTR) Cefic Industrial Policy Programme 24 August 2017 Dr Moncef HADHRI, Cefic Industrial Policy, Economic Affairs, mha@cefic.be

The IFO World Economic Climate remains good this quarter (Q3-2017)

The world economy is expected to continue to recover at a slightly slower pace in 2HY-2017 Experts assessed the current economic situation far more positively than in April, but were slightly less optimistic about the months ahead. The world economy is expected to continue to recover at a slightly slower pace in the second half of 2017. The economic climate primarily improved somewhat in the advanced economies, and especially in the euro area. Britain was the only country to experience a slump- from plus 4.7 balance points to minus 46.3 points. Emerging and developing economies also had a dampening effect. Economic expectations clouded over in nearly all regions of the world. In the advanced economies, however, the economic situation this quarter was better compared to three months ago. Price increases in the world economy are expected to slow down somewhat in the months ahead. Most experts still expect short and long-term interest rates to rise, but the number of experts expecting higher interest rates fell somewhat. Above all, experts expect world trade to pick up considerably over the next six months. Experts’ assessments of the current economic situation were considerably more positive, making their sharpest increase since January 2013. Economic expectations also improved. A further recovery was seen in the world economy in the second quarter. The ifo World Economic Climate improved in nearly all regions of the world. The main drivers remained the advanced economies, and especially the European Union. Both assessments of the current economic situation and expectations continued to follow an upwards trend in most countries. There was also a significant improvement in the developments and outlook for emerging and developing economies Africa and the Middle East were the only regions in which the economic climate deteriorated moderately than previously.

The economic climate primarily improved in the euro area The economic climate primarily improved somewhat in the advanced economies, and especially in the euro area. Britain was the only country to experience a slump-from plus 4.7 balance points to minus 46.3 points.

EU chemicals* business confidence has continued to improve since Q2-2016 *Chemicals excluding pharmaceuticals (Nace 20) The chemical business situation at present became more favourable in the second quarter of 2017. Prospects for the coming months moved in a positive direction. The business climate has been improving since Q3-2016, Total order-book levels of chemicals continued to increase, and employment expectation for the months ahead continued to follow an upwards trend. However, there were also negative changes in selling price expectations for the next six months. Chemicals business confidence follows an upward trend for the fifth consecutive quarter . It is above the long-term average.

EU chemicals* output: Significant growth in 2017 Output in the EU chemicals sector grew 3.1 % from January to June 2017 (y-o-y), Output rose in most chemicals sub-sectors. Production saw a significant increase in crop protection (5.6%), basic inorganics (4.5%), polymers (4.2%), dyes and pigments (3.2%), and consumer chemicals (2.6%). Modest output growth for specialty chemicals (1.7%) was recorded. Output in chemicals is 2.1% below the first quarter of 2008.

Most chemicals* sectors posted positive output growth during the first half of 2017 Output rose in most chemicals sub-sectors. Petrochemicals is the only exception, where output went down 1.7 per cent during Jan-June 2017 (y-o-y). *Production figures on chemicals sectors are not comparable; they did not have the same degree of country coverage.

Chemicals prices were above the previous year’s level Producer prices were above the previous year’s level also in a twelve-month comparison (+5.7%, Jan-June (2017 vs 2016). Most chemicals sectors posted positive growth on prices. “Petrochemicals” saw impressive price growth (14.7%), “polymers” (4.3%) and “dyes and pigments” (4.6%) more modest price growth.

Chemicals* capacity: The second highest level for 6 years (Q1-2011-Q1-2017) *Chemicals excluding pharmaceuticals (Nace 20) Capacity utilisation: Q2-2017, it is 3.4% above the long-term average. This represents the fifth consecutive quarter of growth since Q2-2016. It is the second highest value for six years (Q1-2011, Q1-2017). Capacity grew in line with production during the past quarters.

Summary of key findings-I- Global economic climate remains good: According to the Ifo World Economic Survey (WES) “third quarter of 2017”, experts assessed the current economic situation far more positively than evaluated in April of this year. However, expectations for the months ahead were slightly less optimistic. The economic climate primarily improved somewhat in the advanced economies, and especially in the euro area. Britain was the only country where the economic climate experienced a deep slump. The world economy is expected to continue to recover at a slightly slower pace in the second half of 2017. Chemicals confidence continues to improve: According to EU Commission Business Survey data, the chemical business situation at present became more favourable in the second quarter of 2017 compared to the first quarter of the same year. Prospects for the coming months moved in a positive direction. Total order-book levels of chemicals and employment expectations for the months ahead continued to increase. Chemicals business confidence follows an upward trend for the fifth consecutive quarter and is above its long-term average. Chemicals output up by 3.1% during first half of 2017: Production in the EU chemicals sector grew 3.1% during the first half of 2017 compared to the same period of 2016. Output rose in most chemicals sub-sectors. Production saw a significant increase in crop protection, basic inorganics, polymers, dyes and pigments, and consumer chemicals. Modest output growth for specialty chemicals was recorded. Chemicals output is still (2.1%) below the first quarter of 2008.

Summary of key findings-II-  Chemicals prices surge 5.7% during first half of 2017: Producer prices were above the previous year’s level. Producer prices in the EU chemicals sector grew 5.7% during the first half of 2017 compared to the same period of 2016. Most chemicals sectors posted positive growth on prices. Chemicals sales up during first five months of 2017 (y-o-y): Larger production volumes and a positive trend of producer prices brought a clear rise in sales. Domestic sales developed favourably from January to May 2017. Sales revenue generated by EU companies in the EU single market reached the value of €163.6 billion through May 2017. This represents an additional revenue of €21.4 billion (15.0 per cent, y-o-y). Sales revenue (domestic + exports) posted the value of €106.2 billion during the first five months of 2017, up from €98.4 billion through May 2016 (8.0 per cent, y-o-y). Chemicals consumption rises 8.9% during first five months of 2017 (y-o-y): Chemicals consumption (domestic sales + imports) in the EU home market developed positively from January to May 2017. Consumption went up significantly, generating a value of €201.3 billion (8.9 per cent, y-o-y). Chemicals capacity utilisation grows positively for fifth consecutive time: According to EU Commission Business Survey data, capacity utilisation in the EU chemicals sector reached the value of 84.1% in the second quarter of 2017. This represents the fifth consecutive quarter of positive growth since second quarter of last year. Chemicals capacity is slightly below the first quarter of 2011 which represents the peak level after the crisis.

Summary of Key findings*: Top Indicators *Chemicals excluding pharmaceuticals (Nace 20)

A1. Chemicals* output growth (year-on-year) *Chemicals excluding pharmaceuticals (Nace 20)

A2. Chemicals* prices growth (year-on-year) *Chemicals excluding pharmaceuticals (Nace 20)

EU chemicals* sales by sub-sector (year 2016) *Chemicals excluding pharmaceuticals (Nace 20)