Last year, as Germany dealt with its energy crisis from the loss of access to cheap Russian energy supplies, its manufacturing sector, from chemical production to metals and machinery, cut back on their production. Now analysts note that as the cutbacks in production continue, it is a sign of a deeper industrial malaise taking hold in the country.
Even though the market has settled since the flows of cheap Russian pipeline gas ceased, and prices have fallen as new supply relationships have established themselves, worsening economic conditions have taken over and continued the damage to demand. According to data from S&P Global Commodity Insights, currently gas usage across the European industrial sector is estimated to remain roughly 20% below 2021 levels.
Erisa Pasko, a natural gas analyst at Energy Aspects, said, “It’s not just about prices anymore, but about the economic conditions. We are still seeing a lot of weakness and a lot of uncertainty.”
An hour east of Munich, at the Gendorf chemical park, one can clearly see the effects. Housingf manufacturing facilities for such firms as 3M Co., Clariant AG and Westlake Vinnolit GmbH, the site for chemical makers employs about 4,000 workers. The park’s annual electricity demand of over 1 terawatt-hour — equivalent to supplying about 300,000 households, is mostly supplied through gas, however this year consumption is down significantly.
Tilo Rosenberger Süß, spokesman for the hub’s operator InfraServ Gendorf, said, “There is currently no indication that the situation is improving,” adding that it is possible the situation will morph into long-term demand destruction at the facility.
The nation’s trade group for the chemical production sector, VCI, said that production, excluding pharmaceuticals, is expected to fall 11% in 2023. At the same time, the European Chemical Industry Council estimates that there will be an 8% fall in production across the region, and noted there is no imminent recovery of demand expected to be forthcoming.
Germany is a central aspect of the weakness in the industry. The most powerful economy in Europe began the third quarter looking at the largest monthly fall in factory orders since the 2020 pandemic. A monthly survey of economists by Bloomberg predicted the manufacturing downturn is likely large enough to produce a quarterly contraction, right after it barely exited its last recession.
Part of the problem is that following massive investment in liquified natural gas infrastructure, and a massive buying spree of cargoes on the world market, the risks of another gas shortage is limited. However now the fear of a recession has grown to the point that German businesses are hesitant to invest in ramping up production again.
Meanwhile, other businesses are pulling up their roots and moving overseas to locations where the economic environment and cost structures of doing business are friendlier.
Hellma Materials, a manufacturer of crystalline and optical components based out of Jena, has just invested €20 million ($21 million) into a new facility in Trollhattan, Sweden. In a statement, Chief Executive Officer Thomas Töpfer said the new site will meet the complex requirements of the company with regard to electricity supply and industrial cooling water.
Not all manufacturers are suffering, however. The largest fertilizer maker in Europe, Yara International ASA, says it is forecasting a higher demand for ammonia through the end of the year.
Magnus Ankarstrand, Yara’s executive vice president for corporate development, said in an interview, “Volatility in prices distorts the market and distorts buying. But eventually farmers and distributors have to buy because the market will need the fertilizer to produce the food that the world needs.”
