Dr Moncef HADHRI (Chief Economist) Cefic Industrial Policy September 25, 2014 The European Chemical Industry: Trends and Outlook ECSPP Members Meeting and European Symposium

 Contributes to 18% of the world’s chemical sales (2012)  Represents 29,000 companies (96% SMEs)  Employs 1.1 million people (2013)  Generates € 558 billion of revenues (2012)  Creates a trade surplus of € 48.7 billion (2013) The European chemical industry is key for economic development and wealth Sales 2012: € 558 billion (share %) Source: Eurostat and Cefic Chemdata International

It is one of the largest industrial sectors in many regions of the European Union EU chemicals is the firth leading manufacturing sector, accounting for 7% of total added value Source: Eurostat SBS and Cefic analysis June 2014

EU industrial platform is losing importance in the EU economic activity The EU ambition is to get back to 20% GDP contribution

Despite the strength of the chemical sector, current situation gives cause for concern Output remains nearly 10% below the pre-crisis level

EU chemicals sales almost double in 20 years, while its world market share halved Source: Cefic Chemdata International 4 This is a “dilution effect, a trend expected to continue in the future

World chemicals output doubles as emerging markets sales surge Source: Cefic Chemdata International 3 Growth has been fastest in emerging economies

And this trend will continue Global chemicals production in value Source: IHS and cefic analysis (for 2002) CAGR World 3.7 % ( ) Growth in post-recession Europe remains low, mainly due to mature markets and ageing population

What are the key factors affecting competitiveness of the EU chemicals sector? Energy and Raw Materials Regulatory Stability and Consistency Capital Investment Innovation Access to Markets Skills and People Logistics and Infrastructure

Advantaged energy and feedstock prices are a clear enabler of competitiveness This is boosting profits abroad and attracting billions of dollars in investment

Ethylene cost stands for 60% of total production cost Ethylene is the highest volume building block in the chemical industry globally

Barriers to growth: views from CEOs of the German chemical industry

Cumulative number of EU regulation on HSE is killing the business of chemicals Number of EU regulations on HSE, 83% more in 9 years time

Investment in the EU chemicals industry has been following a worrying trend

Investment is a key factor pointing to a loss of market attractiveness for production 4 C apital intensity is both an indicator of loss of attractiveness as well a driver of future competitiveness

Europe is facing a number of challenges to its leadership on the global market  Geographical shift towards the Middle East and Asia Structural overcapacities in a number of chemical segments on EU markets The chemical industry will continue further consolidation Only strong chemical clusters in Europe have a future  Shift in business models Energy efficiency and raw materials management request adapted processes within the chemical industry Innovation and high tech solutions hold the key for the future  Demographical shift and climate change  Chemical industry will provide solutions to these challenges. But will it happen in Europe?

Can we remain Competitive? Large integrated domestic market with strong customer industry clusters High international orientation and global networks to external customer industries Skilled and motivated workers and scientists Constant adaptation to globalised markets Strong innovation efforts will generate new growth clusters: Efficient Energy use, health and new materials which could solve upcoming societal mega challenges  High energy and feedstock costs  High Regulatory Compliance Costs (eg REACH)  Lack of a “Common Industrial Policy” or a “Common Energy Policy”  Non-energy raw material availability and cost issues (eg. biobased feedstock, rare earths, minerals)  Mature market, ageing population, risk aversion of societies

9 billion people will live on earth by 2050! How can we guarantee food and water supply for everyone? What are possible benefits and contributions of plant science? Health & Nutrition Sustainability as a strategic choice for global challenges 67% of the world population will live in cities by 2025! What does future architecture look like? Which materials are needed to make energy consumption more efficient? Construction & Housing 50% more primary energy needed in 2030! What is the ideal energy mix of the future? How big is the stake of renewable energy? Energy & Resources 1.2 billion cars will drive on earth by 2020! How can we reduce emissions and fuel consumption ? What will future cars be made off ? Mobility & Communication

Where will we be tomorrow? GDP European Chemicals Growth CONFID ENCE CostTRADE CHEMICA LS CUSTOM ERS “He who speaks about the future lies, even when he tells the truth.” (Proverb from Middle East)

Where will we be tomorrow? Outlook revised slightly down compared to June : - 0.3%, 2014: 1.3%, 2015: 2.0%

 Back-Up Slides

Providing modern products and enabling technical solutions in virtually all sectors Base chemicals Fine and specialty chemicals Transfer of intermediate goods innovation sustainability competitiveness

And an important source of direct and indirect employment % of EU Manufacturing employment (year 2010 ) Source: Eurostat SBS and Cefic analysis June 2014 Chemicals contributed to 4% of EU manufacturing employment

The de-industrialisation in Europe is more than reality Less demand is generated for the EU chemicals industry