Chemical firms pin hopes on report

Date: 04/01/1996

CHEMICAL producers have begun a campaign to ensure that a difficult trading period is not exacerbated by the imposition of extra costs on the industry to meet legislative requirements.

At a time when the chemical industry is going through a period of tough competition, weak prices and savage cost-cutting, producers want to make sure that the European Commission recognises this when setting policy.

Following the publication in September of the Commission's report on policies to enhance industrial competitiveness, Industry Commissioner Martin Bangemann called for a special study of the chemicals sector.

“This is the beginning of something new,” says Hugo Lever, Director-General of the European Chemical Industry Council (CEFIC). “Once this paper is agreed, we will be able to say to the Commission: you have agreed that this is our competitive position, now let's talk about whatever you are proposing on that basis.”

CEFIC hopes the paper will help it in its struggle against proposals such as the carbon energy tax, which has been mired in the EU's legislative maze for several years.

The paper, which is expected to leave the Commission services for discussion in the Cabinets during this month, covers the effects on the industry of energy costs and legislation, environmental protection, biotechnology and barriers to innovation.

These issues are particularly important to the industry as it faces the chill wind of competition from Asia and a slow-down in the European economy.

Chemicals production decelerated in 1995 and is expected to grow by just 2.5&percent; in 1996, with exports dipping as demand weakens in the US and Asian consumption remains largely unchanged.

Having over-invested in capacity in the late Eighties as demand slowed, the industry is reluctant to take the plunge again. Plans to build new plants have been shelved and existing production and employment cut.

The industry's workforce of about 1.8 million people has been reduced by 250,000 since 1990. Investment fell 30&percent; in volume terms between 1990 and 1994 and is forecast to rise by just 6.5&percent; this year. Between 1990 and 1994, producer prices in Western Europe rose just 2.5&percent;, well below consumer prices. On average, chemical prices are expected to rise just 0.5&percent; in 1996.

A slight upturn in demand last year turned out to be deceptive since it was simply the result of a rise in demand for synthetic fibres after a shortage of wool and cotton.

As a result, CEFIC is concerned that large-scale extra ethylene capacity should not be built in Europe in the coming five years.

The industry should even start considering the kind of coordination that failed in 1993, when an attempt to set up a fund to help shut down excess capacity failed to get off the ground.

“At some time, we will have to talk about the fluctuations of supply and demand and capacities but we can only do this when the Commission is fully involved,” said Lever.

Without the involvement of the Commission throughout any negotiations to coordinate capacity cuts, the industry could leave itself open to anti-trust actions and even fines.