VCI warns of 'deteriorating' conditions in German chemicals industry due to war

FRANKFURT, Germany—The production conditions within the German chemicals industry are "rapidly deteriorating" due to the ongoing war in the Ukraine, the industrial association VCI has warned.

Citing a survey carried out earlier in March, VCI said 80 percent of responding companies are now "severely or very severely disrupted" in their production due to problems in the supply chains and high procurement costs.

While more than half of respondents expected higher sales in 2022 back in February, the recent survey shows that the majority is now "pessimistic" about the year, VCI said March 29.

"The picture has changed within a few weeks," it said.

The association warned of the serious repercussions of the sharply rising procurement prices and supply bottlenecks in energy and raw materials.

"The war in Ukraine has fundamentally exacerbated the problems on the supply side," VCI said.

"Energy commodity prices have risen to new highs," it added.

In Germany in particular, VCI said dependence on Russian gas, coal and oil supplies is high and that adds to the already tense supply chain environment.

"Transport costs have increased due to higher fuel costs, delivery times have increased due to necessary detours," it said.

In addition, the shortage of truck drivers has been compounded by the loss of drivers from Russia and Ukraine.

VCI said its members were finding it increasingly difficult to pass on the costs, and margins have come under "increasing pressure."

"The situation is already threatening the existence of individual companies and the risk of having to cut production is increasing," the association added.

Describing the energy dependency on Russia as Germany's "Achilles' heel," VCI said a possible gas embargo would have serious consequences for the industry.

The country imports 40 percent of its annual gas consumption from Russia, according to VCI.

As it is not possible to replace gas in the short and medium term, an embargo will have a direct impact on the production options for basic chemicals.

Furthermore, value-added stages in the chemical industry—such as fine and specialty chemicals and polymers—will be impacted by the shortage of basic chemicals.

"In other words, in addition to the gas-intensive basic chemical industry, non-energy-intensive parts of the chemical industry would also be directly affected and would have to reduce their production," VCI concluded.