Profits in the European Chemical Industry Have Evaporated, with a Large Number of Companies Announcing Investment Cuts

With no hope of economic recovery, European chemical giants began to cut investments and close factories.

Many European chemical giants, including BASF, Covestro, Evonik and Lanxess, reported third-quarter sales declines and corporate operating losses. Currently, the European chemical industry is cutting costs, and some companies have even closed manufacturing plants due to continued weak demand for their products.

German situation

As the world's largest chemical group, BASF suffered a loss of US$264 million in the third quarter, compared with a profit of US$962 million in the same period last year; sales were US$16.2 billion, a year-on-year decrease of 28%. The German giant said product prices and sales volumes in its Materials, Chemicals and Surface Technologies businesses fell significantly.

Later, BASF announced plans to cut costs by approximately US$215 million per year, to cut costs by more than US$750 million per year by 2027, and to reduce investment by approximately US$4.3 billion per year over the next five years, for a total of US$26.5 billion. Chief executive Martin Brudermüller said the company had more projects than it had funding.

Lanxess also posted a loss in the third quarter. CEO Matthias Zachert sees no signs of economic recovery in sight for the remainder of 2023. The company plans to achieve one-time cost savings of $107 million in 2023 and $160 million annually starting in 2025. LANXESS will cut 870 jobs, including 460 in Germany. The company said it has begun selling its polyurethane chemicals unit and will use the cash to pay down debt.

"The German chemical industry will continue to face an extremely challenging business environment," said Anna Wolf, an industry expert at the IFO Institute, a German economic research institute. In October, the order situation of 48% German chemical industry is not optimistic. The higher electricity prices in Germany than other countries are one of the disadvantages of the company.

Situation in other European countries

Chemical companies elsewhere in Europe are also struggling. Belgian Solvay's third-quarter sales fell 24% to US$2.9 billion; profits fell 33% to US$360 million. Solvay's aroma chemicals business, which it sells in the food and fragrance markets, performed the worst, with sales falling 41%.

Weak demand for chemicals has led companies across Europe to close factories. Trinseo said it will close its ethylbenzene and styrene plant in Terneuzen, the Netherlands. Celanese plans to close its nylon materials plant in Uentrop, Germany. Kem One's chlor-alkali plants in La Vera and Foss, France, have been idled, while Sabic will shut down a polycarbonate production line in Cartagena, Spain.

According to data from investment company Jefferies, the financial performance of the U.S. chemical industry has been better than that of the European chemical industry in the past two years. Still, U.S. chemical companies have been hit by weak demand for their products. Dow Chemical, Eastman Chemical and Huntsman all reported third-quarter sales and earnings declines.