The European chemical industry is experiencing a moment of crisis, as high raw material costs, stagnant local economies, a shortage of skilled labour, and overseas price competition continue to drive down profitability. When combined, these factors are forcing the closure of numerous large industrial chemical facilities and are making even the largest homegrown chemical corporations, such as Germany’s BASF and France’s Air Liquide look to move chemical production outside of Europe.
In response, EU leaders and chemical business chiefs are openly talking about how the European chemical industry can return to health. It is a series of frank and very public discussions to try and get to the root cause and the solution to EU chemical production woes.
So, what plans do chemical industry leaders have in place to turn things around – beyond adding the obvious burden of increasing chemical safety regulation and enforcing NetZero targets?
A recent report by Mario Draghi, the Former European Central Bank President, has now outlined a route for broader European chemical industry success. Although it makes difficult reading for European chemical companies, stating that, “All will have to cross boundaries and comfort zones.”
In a nutshell, the report claims that in order for Europe to compete in the global chemical industry, it will be necessary to find a way to combine decarbonisation, finance the transition to new chemical processes (such as biochemistry), and remove the current dependency on imported feedstocks, such as Chinese rare earth elements and North American LNG.
Other articles on this theme include: The Chemical Industry’s Next Great Shortage: Skilled Labour, How Chemical Companies Can Turn Challenges into Profit, and The Top Four Risks the Chemical Industry is Overlooking
Much of this thinking follows the ideas established in the Antwerp Declaration which has already been signed by 1,300 industry leaders. This policy statement outlines the need to integrate industrial policy for manufacturing, trade, and competition, into a coherent single strategy.
“I believe I can say on behalf of all the signatories of the Antwerp Declaration,” stated Cefic President Ilham Kadri, “that it is time for EU institutions and Member States to answer to this wake-up call for Europe. If these recommendations are not implemented … Europe will be in slow agony. Industry and its workers do not have the luxury to be part of that. It is not only about closing the innovation gap, but about keeping existing capacity profitable in Europe.”
While these stark words may seem harsh following more than two hundred years of European chemical industry dominance in global markets, they have clear support. Not least from Martin Brudermüller, who was Cefic President at the time the Draghi report was published.
“Basic industries in Europe are grappling with historical challenges: demand is declining, investments in the continent are stalling, production has dropped significantly, and sites are threatened,” he said. “We want to drive the transformation of our companies. For this, we urgently need decisive action to create the conditions for a stronger business case in Europe.”
Specifically, he states that, “‘The Antwerp Declaration’ outlines a pathway ahead. By placing the European Industrial Deal at the forefront of Europe’s strategic agenda, the EU would pave the way for a resilient, competitive, and sustainable Europe. This is the only way to show the rest of the world that the Green Deal works for all.”
Interestingly, Draghi’s report contains a chapter entitled ‘What is Standing in the Way?,’ which outlines three clear obstacles to European chemical industry success. These are:
1. Mixed Focus.
The report claims that while industry chiefs have laid out clear goals, they are varied, lack focus, and are sometimes even conflicting. For instance, it notes the increasing levels of regulation imposed on European businesses, stating that these are restrictive despite industry chiefs also claiming to support industry innovation.
The administrative load and regulatory barriers are cited by over half of European SMEs as their biggest challenges.
2. Wasted Resources.
The European Union, with its vast economic resources and technological capabilities, is unfortunately squandering its wealth by not investing enough in strategic industrial development. This is because, while the EU boasts an impressive GDP and a high standard of living, it is failing to prioritize long-term industrial growth and innovation.
As the report states, “We have large collective spending power, but we dilute it across multiple different national and EU instruments. We do not collaborate enough on innovation, even though public investments in breakthrough technologies require large capital pools and the spillovers for everyone are substantial. The public sector in the EU spends about as much on research and innovation as the US (as a share of GDP), but just one-tenth of this spending takes place at the EU level.”
One key example of this can be seen in the lack of chemistry and engineering graduates with numbers drastically falling in favour of less demanding academic fields. This is despite the increasing average age of European chemical industry workers.
Only by redirecting resources away from short-term consumption and toward productive, future-oriented investments, Draghi believes, can the EU grasp the opportunity to leverage its wealth to secure a more prosperous and self-sufficient industrial base for generations to come.
3. Poor Coordination.
Coordinating industrial policy is of paramount importance, particularly for tightly integrated sectors such as manufacturing and the chemical industry. Companies in these fields are inextricably linked, with the chemical industry providing essential raw materials, components, and processing technologies that enable and support the manufacturing of a wide array of products.
By aligning policies and strategies across these interconnected domains, governments and industry leaders can drive synergies, boost adoption of the circular economy, optimize the use of resources, help mitigate supply chain disruption, and foster collaborative innovation.
Additionally, coordinated industrial policy can incentivize investments in research and development, encourage technology transfer, and ensure the availability of a skilled workforce - all of which are crucial for maintaining a competitive edge in today's global chemical marketplace.
Instead, the report outlines how European policy fails in this area, stating that, “Industrial strategies today – as seen in the US and China – combine multiple policies, ranging from fiscal policies to encourage domestic production, to trade policies to penalise anti-competitive behaviour, to foreign economic policies to secure supply chains.”
While the Draghi report attempts to remain positive about the European chemical industry’s position, noting it to be a long-term vital economic driver for the continent, it has raised eyebrows for the stark warnings it provides over industrial policy.
Now that the many issues such as stringent environmental regulations, high energy costs, and a lack of strategic investment, have been laid bare, it remains to be seen what action will be taken.
As the current Cefic President Ilham Kadri, observes, “Diagnosis is not the end, but the beginning of practice.” Kadri, who is also heads the chemical company Syensqo, goes on to concludes that, “As a CEO of a global company facing global challenges, I can tell you every boardroom in the world is now watching how fast action is taken. It is not the time for business as usual in Europe. This report provides proposals that need urgent implementation: it is our chance to double down and get it right.”
Photo credit: Pxfuel, Pxfuel, Pxfuel, Bernd Dittrich on Unsplash, and Jaques Dillies
