The chemical industry is tightly woven into Germany’s industrial fabric, beginning with the invention of synthetic dyes in the late 1800s. Today, chemical products make up 10% of Germany’s exports and the country is home to the world’s largest chemicals company, BASF.
But while industries like steel, aluminium, and paper have so far been able to weather the energy crisis, the chemical sector has taken a bad hit.
Output in the chemical industry, which is embedded in many industrial processes ranging from fertilisers to plastics, decreased sharply in 2022. A November survey by the German chamber of industry and commerce found that more than 25% of chemical industry companies had scaled back production.
The final straw came at the end of October when BASF announced it would “permanently” scale back its operations in Europe, citing rising energy costs and concerns over regulation.
For Germany’s political leaders, the announcement came as a shock.
“Industry is part of the culture and the way we live in Germany,” said Chancellor Olaf Scholz while on a visit to a BASF plant on 1 November.
The same day, Vice-Chancellor Robert Habeck was on a visit to the Wacker chemical plant in Saxony, which manufactures polysilicon used in solar panels. Until the energy crisis is fixed, “the state must ensure that the economic substance holds out,” Habeck promised.
The chemical sector is particularly exposed to rising energy prices.
“The costs of electricity, oil and gas account for around 12% of production costs in the chemical industry,” a proportion that rises to “more than 70%” for chemicals such as ammonia or chlorine, explains Wolfgang Große Entrup, CEO of the German chemical industry association VCI.
And over the last two years, “energy costs have more than quadrupled,” he told EURACTIV.
Big chemical groups like BASF have so far been largely shielded from rising energy prices. Large companies, which have dedicated energy trading desks, can hedge their costs thanks to long-term purchasing strategies.
Wacker, for instance, still receives 50% of its energy through lower-price long-term contracts at its production site in Saxony.