Europe risks losing its chemical industry due to the energy crisis – Bloomberg

This is according to Bloomberg.

“Europe faces strategic risks linked to its industrial resources. The supply of key chemicals is under threat due to the economic aspects of their production. And these problems are largely a consequence of its own actions,” the report states.

For decades, the European Union has pursued a policy based on easy access to global resources.

Against the backdrop of the collapse of the global order, these built-in dependencies threaten to spread to the value chain and affect everything from food and painkillers to cars and building materials, analysts noted.

Due to disruptions in the oil and natural gas markets caused by the suspension of shipping in the Strait of Hormuz, the production of key chemicals – such as ethylene and propylene, used in plastics manufacturing – in Europe is becoming increasingly uncompetitive.

For decades, the EU has imported the majority of its energy supplies. This dependence became apparent following Russia’s invasion of Ukraine and has intensified as a result of the conflict between the US and Israel with Iran.

With rising oil and gas prices, this threatens local production of the raw materials needed to manufacture more complex chemicals. Although imports are one option, this would expose the region even further to the risks of global instability.

In a free global trade environment, many chemical products can be easily imported. But in times of crisis, or when geopolitical blocs form that hinder free trade, this becomes a problem, as entire production lines can suddenly grind to a halt.

There have been numerous warnings that Europe’s dependence on globalised supply chains has become a problem. In particular, following the Covid pandemic, car production on the continent ground to a halt due to a shortage of microchips from Asia.

Germany’s largest ammonia producer was forced to temporarily halt production in 2022 after soaring gas prices made the production of this key component for fertilisers, fuel additives and explosives unprofitable.

Although SKW can still pass on to consumers the costs that have risen sharply due to the war in Iran, the current situation demonstrates just how volatile this sector has become.

Due to soaring costs and difficulties in sourcing raw materials as a result of the war in Iran, German chemical giant BASF SE has decided to raise prices for detergents by around 30%, whilst its rival Evonik Industries AG has also announced price increases for compounds used in feed for cattle and poultry. Ultimately, these increases are affecting the cost of living.

With gas prices soaring, companies have little room for manoeuvre. They pass on higher costs to consumers where possible, or cease operations – as SKW did in 2022, the report states.

“The risk for Europe is that if the production of basic chemicals disappears from the continent, it will increase vulnerability and create a domino effect that will cause a downturn across the entire economy,” the analysts added.

Follow us on Telegram