Spanish Chemical Industry Sales Increase by 4.8%, Production Up by 7.1%, but Faces €3 Billion Decarbonization Funding Gap

Recently, statistics released by the Spanish Federation of Chemical Companies (Feique) show that in 2024, Spanish chemical sales are expected to increase by 4.8% compared to 2023, reaching 86.5 billion euros, and production is expected to increase by 7.1%. Feique expects Spanish chemical sales in 2025 to increase by 4.2% compared to 2024, breaking the 90 billion euro mark for the first time, while chemical production will increase by 3.2%. Compared with other European countries, especially traditional economic powers such as France, Germany and Italy, Spain's chemical industry and macroeconomic data this year are outstanding. However, the Spanish industry also reminded that there are some hidden concerns in the Spanish chemical industry that need to be paid attention to and solved.

The good figures for the Spanish chemical industry are, above all, due to macroeconomic soundness. The International Monetary Fund (IMF) recently raised its forecast for Spain's GDP growth in 2024 to 2.9% from 2.4% in July, one percentage point higher than its forecast a year ago. Spain's GDP is expected to grow by 2.1% in 2025. As a result, in 2024 and 2025, Spain will grow much faster than the two largest economies in the euro zone, Germany and France. The IMF's forecasts also show the German economy stagnating in 2024, while the French economy will grow by 1.1 per cent.

In Spain, healthy macroeconomic data effectively permeated the chemical sector. In 2024, strong domestic demand and a recovery in exports have enabled the sector to better meet the challenges compared to its peers in other major euro area economies.

The spike in global chemical prices in the unstable post-COVID-19 period led to a significant increase in Spanish chemical sales in 2021 and 2022, but as prices fell back, Spanish chemical sales in 2023 fell by nearly 7% compared to 2022, and production fell by 0.7% compared to 2022. The situation will improve significantly in 2024, as predicted by Feique's director General Juan Rawat in July. "Spanish chemical prices are recovering from their 2023 lows and by the end of the year average selling prices should reach pre-COVID-19 levels," Rawat said. Domestic demand is strong and exports remain healthy. In Spain, production of basic chemicals is recovering strongly, which is crucial as this subcategory experienced the biggest decline in 2023, down 11 percent, but increased 8 percent year-on-year in the first seven months of this year. Almost all chemical segments performed well, including paints, personal care products, pharmaceuticals. Given the economic situation in the surrounding countries, Spain's economic performance has been like a rocket."

However, Teresa Lassero, president of Feique, pointed out that the overall positive figures for the Spanish chemical industry masked poor performance in key sectors. While consumer chemicals, specialty chemicals and health care products are enjoying healthy growth, basic chemicals are still coping with the challenge of high energy costs, even as the Spanish basic chemicals sector performs well compared to the rest of Europe.

Lassero stressed that compared with countries such as Germany or France, Spain's lack of public support for the transition of energy-intensive industries has led to a worsening of the survival of the basic chemicals industry. The European Union calls this compensation for the cost of carbon permits. Feique noted that this figure for Spain is expected to be only 300 million euros per year in 2024, far less than the billions of euros offered by neighboring countries. "In comparison to the few countries that have established similar systems, compensation for emissions charges in Spain is almost non-existent," Lassero said. The problem is that the production of basic chemicals or other similar energy-intensive industrial sectors is essential to maintaining the strategic autonomy of the Spanish economy. We need more competitive energy prices and faster decarbonisation, which is key to the future of the manufacturing economy in Spain and Europe."

Lassero said Spain's chemical industry needs an additional €3 billion of investment per year compared to the rest of Europe to achieve decarbonisation targets between 2025 and 2050. According to the association's forecasts, government support for the Spanish chemical industry of 300 million euros per year is far from enough, and decarbonisation targets will be difficult to achieve if all efforts come from the private sector. Of the €3 billion needed annually, €1.7 billion is for new and retrofitting chemical plants, €850 million for operational adjustments during the technology transition, and €450 million for overhaul and adaptation to new regulations, the association said. Only in this way will Spain's chemical industry be able to achieve its target of reducing CO2 emissions by 12.4 million tonnes per year by 2050.

In addition, Feique noted that the internal situation in Spain has had a negative impact on the chemical industry. Spain's healthy macroeconomic and chemical sector figures for 2024 come against a backdrop of political difficulties. Spain is not immune to the current trend of strong polarization in Europe. Since July 2023, Pedro Sanchez's cabinet has been unable to pass the 2025 budget because the ruling center-left government has only a minority of seats in parliament. Although under Spanish law the cabinet can extend this year's budget into next year, it would be severely weakened if it failed to pass a new budget to fulfill its recent election promises. The current political situation is clearly not good for the Spanish chemical industry, which needs investment and transformation funds, and is in desperate need of certain policies.