Wednesday, February 21, 2024

The German chemical sector is beginning to experience the effects from the Red Sea crisis

By PortalPortuario Editorial Staff/Reuters Agency


The German Chemical Sector Is Beginning To Experience The Effects From The Red Sea CrisisThe chemical sector of Germany’sthe largest of Europebegan to feel the impact of shipping delays throughout Red Seabecame the latest industry to warn of supply disruptions forcing some companies to curb production.

Asia’s key imports to Europe, from auto parts and engineering equipment to chemicals and toys, are taking longer to arrive as container shippers move ships around. Africa and far from the Red Sea and the Suez Canalafter the attacks of the Houthis in Yemen.

While German industry is getting used to supply disruptions after the pandemic and the war in Ukraine, the impact of reduced traffic through the commercial artery is beginning to be felt.

Germany’s chemical sector, the country’s third-largest industry after cars and engineering, with annual sales of around 260 billion euros ($282 billion), depends on Asia for almost a third of imports of it from outside Europe.

“My procurement department is now working three times harder to get something done,” he said. Martina Nighswonger, CEO and owner of Gechem GmbH & Co KGwhich mixes and packages chemicals for large industrial clients.

Due to delays, Gheemwhich returns double-digit million euros per year, has reduced the production of dishwashers and toilet tablets because it cannot get enough trisodium citrate, as well as sulfamic and citric acid.

The company is therefore reviewing its three-shift system, Nighswonger said, adding that the ripple effects of the transport ban could remain an issue even in the first half of 2024.

“If we receive three trucks instead of six, each customer will only receive a portion of their order quantity, but at least everyone will receive something,” he added.

The largest manufacturer of specialty chemicals, Evonikalso said it was affected by “delays and short-notice rerouting,” adding that some ships changed direction up to three times in some days.

The company said it is trying to minimize the impact by ordering earlier and switching to air transport, which is considered a stopgap because some chemicals cannot be carried by plane.

Asian dependency

JP Morgan shows that even the disruption of maritime transport in the Red Sea and the Panama Canal pushing up chemical prices, it can also accelerate companies’ replenishment efforts and therefore create more demand.

This, “if sustained, could ease pressure on China’s chemical exports and could result in some price/margin stabilization and, as a result, inventory replenishment,” the brokerage wrote.

The German industrial body VCI has long focused on reliance on Asian imports, saying that while production disruptions should be limited to individual cases, import delays across the Red Sea are an additional burden in an already weak industry.

“The effects are particularly striking in medium-sized good and specialty chemical companies,” said the VCI chief economist Henrik Meinckeadding that these companies often source a substantial proportion of their raw materials from Asia.

The Red Sea transport crisis comes as the German economy is under pressure due to a recession, as well as high labor and energy costs. According to S&P GlobalEurope’s chemical sector, along with autos and retail, is considered the most vulnerable.

In addition to import delays, chemical groups point to rising fuel costs as tankers carrying the essential raw material take about 14 days longer to arrive, adding that it those costs can simply be passed on to customers.

In this regard, Covestro, which makes chemical foams used in mattresses, car seats and building insulation, is expected to gain higher freight rates, but added that this is not a factor in its overall costs. He said an internal working group was solving the issue, noting the strong footprint in the region.

Meanwhile, the perfume manufacturer Symrise It also said it does not expect delays in its deliveries as it has sufficient safety stock, and asked customers to follow their normal ordering patterns to avoid any unreasonable delays. .

At the same time, Wacker Chemiewhich supplies polysilicon for nearly half of the world’s chips, also pointed to higher prices, but added that its business had not been significantly affected so far.

Finally, Meinckeof VCI, sees a relatively low chance of widespread production disruptions, even if the situation in the Red Sea remains tense, adding that with weak demand, bureaucracy and high energy and raw material costs, the sector that He has enough to worry about.

World Nation News Desk
World Nation News Desk
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