WDK warns of 'immense pressure' on German rubber industry

FRANKFURT, Germany—The German rubber sector is coming under immense pressure with orders "dwindling" since the middle of 2023, industry association WDK has reported Sept. 20.

This is despite an apparently strong first half. Industry sales grew 13.2 percent year-on-year to $6.2 billion, with a nearly 10-percent increase in sales of tires and 15-percent rise in general rubber goods (GRG).

Breaking down the GRG revenues, sales to the automotive industry grew 32 percent to €1.9 billion, while other segments saw a moderate 2.8-percent increase to $2.1 billion during the first six months of the year.

WDK indicated, however, that this growth was from weak prior-year levels, with the current situation more clearly reflected by declining production, capacity utilization and employment in the industry.

Indeed, first-half production fell 4.5 percent year-on-year to 640,000 metric tons, driven by a 7.4-percent decline in tire output to 250,000 tons and 2.5-percent decrease in technical elastomer products to 390,000 tons.

Industry utilization rates dipped to 79.2 percent, as technical rubber manufacturers reported a 0.9-percent drop to 85.9 percent and tire makers a 10.4-percent decline in capacity-utilization to 73.0 percent.

Overall, the number of employees within the German rubber industry shrank 1.4 percent year-on-year to just under 66,000 people.

Demand has fallen in "many important business segments of the German rubber industry," WDK Chief Economist Michael Berthel said. "This applies to the construction sector, manufacturing industry and especially to mechanical engineering and consumer products."

In the tires segment, Berthel noted that the "enormously important" replacement business reported a 15-percent year-on-year decline in sales of consumer tires, and commercial tire demand was down 30 percent.

While automotive suppliers "significantly" increased deliveries to vehicle manufacturers in the first half, he said, this uptick was solely due to previously postponed orders and thus "based on an extremely low starting level."

"The (automotive market) outlook does not look good," Berthel said, citing a lack of orders and possible declines in vehicle production over the course of the year.

Warning that Germany is losing its competitive advantage internationally, Berthel said the trade-off between cost disadvantages and quality advantages "no longer works."

The rubber industry, he said, needs competitive energy prices—which could be achieved through bridging electricity prices for SMEs as well as lower energy taxes and grid charges.

Also of concern are raw materials costs. While commodity markets have calmed down, price levels remain "very high," Berthel said.

Furthermore, suppliers to the automotive industry, in particular, have not yet been able to recover materials cost increases of recent years from their customers.

Sustained pressures on earnings and cash-flow, he added, mean many rubber companies, have been "fighting for their existence" over a prolonged period.

"If there is no rethink here, the supporting pillar of the German (rubber) industry in the form of many medium-sized companies will collapse," he warned.

Berthel, therefore, called for a "quality-driven industrial transformation" and "appropriate framework conditions" to enable the German rubber industry to overcome current challenges.