Chemicals Update: Europe – The restructuring must go on

As it is widely known by now, almost all major chemical companies with a presence in Europe decided long ago to shut down or sell their older, less profitable assets on the continent, which will be a direct hit at the local chemical supply. And while any shortage can be imported from lower-cost locations such as the US or Middle East, a flurry of recent announcements puts a big question mark on how big such a shortage would be and even if there would be any shortage at all.

A number of heavy weights in Europe’s auto industry are being forced to cut costs in any way they can to withstand the intense competition from abroad. It is not even clear that protectionist movements, such as imposing tariffs, will shelter them from competitors who are more innovative and more nimble. Here’s a non-exhaustive list of the recent cost-cutting measures announced in the European automotive industry:

Germany

Volkswagen: Planned a €10 billion cost-cutting drive, with threats of tens of thousands of layoffs and its first German factory closure. It is using voluntary redundancies and early retirements and negotiating with unions to finalise the extent of workforce reductions.

Bosch: Announced plans to cut 5,500 jobs by 2032 in specific divisions and reduced working hours for some employees.

Daimler Truck: Imposed a job freeze and reduced working hours for employees in Germany.

Schaeffler: Plans to cut 4,700 jobs, mostly in Germany, and close production facilities in Austria and Britain.

Ford: Announced 4,000 job cuts, mostly in Germany and Britain.

France

Valeo: Announced cuts of around 1,000 jobs across Europe and the closure of two plants in France.

Michelin: Plans to shut two sites in western France, affecting 1,250 jobs.

Italy

Stellantis: Temporarily halted assembly operations at the Mirafiori plant due to low demand but has not planned plant closures in Italy.

Switzerland

Feintool: Closing a site in Germany, affecting 200 jobs.

United Kingdom

Stellantis: Plans to shut its Vauxhall van factory in Luton, putting over 1,000 jobs at risk.

Schaeffler: Included Britain in its production facility closures.

It is not difficult to guess how this will affect the chemical industry and trade. The production of vehicles is one of the main demand streams for chemicals. True, most of the chemical products used in vehicle manufacturing are various sorts of plastics, however there’re are several of these products which are derived from benzene, ethylene dichloride (EDC), acrylonitrile (ACN), acetone, methyl-methacrylate (MMA) and styrene.

Europe has had a vibrant intra-regional trade with these products of which 4.7 million mt per year are transported intra-Europe—but it also imports about 1.0 million mt per year from both the US, Saudi Arabia and India, with styrene imports making about 40% of this quantity.

With lower demand from a major sector such as automotive and with a declining population with stagnating incomes, some of these volumes are not going go be needed anymore. This will add to the woes of chemical tanker owners with business in Europe. For owners who employ their vessels in regional trade, it is an especially bad news, as they will have to make a living in a market with shrinking demand. And even if the chemical business model in Europe turns into a hub, and spoke one with bulk commodity chemicals imported from abroad and locally distributed by smaller vessels, an overall smaller demand would probably mean less business for the regional tanker owners. It would be equally problematic for owners who are trading their ships on the Transatlantic trade lane as there would be even lower volumes to Europe and not much as a backhaul cargo.

Taken as a whole, Europe’s production and export capacities are under enormous strain. Populist and right-leaning governments may be tempted to resort to protectionist measures such as the import tariffs on Chinese-origin EVs. But this will be a futile exercise which will not bring any good to Europe’s manufacturing and may in fact worsen its problems. So, as painful as it is, the restructuring must go on.

By Plamen Aleksandrov, Head of Research – Chemicals, SSY.