Energy crisis prompts further warnings by German chemical groups

Two big German chemical companies have warned profits will fall as they adapt to high energy prices in Europe that have already pushed rival BASF to announce it is downsizing in its home region.

Evonik and Covestro, which together employ more than 50,000 people, both said on Thursday that profits would fall in 2023 because of slowing demand for some products and high prices.

Last week BASF, the world’s biggest chemical group by revenue, announced plant closures in Germany, having already said last year it would “permanently” downsize in Europe.

Chemical manufacturing is an energy-intensive business and until Russia invaded Ukraine last year, Evonik, Covestro and BASF had all benefited from plentiful supplies of cheap Russian gas.

“The effects of war, high inflation and heavily fluctuating energy prices demanded a lot from us — and they still do,” said Evonik’s chief executive Christian Kullmann.

The company, which makes chemicals used in products ranging from tyres to animal feed and vaccines, said on Thursday that adjusted earnings before interest, tax, depreciation and amortisation were expected to be in the range between €2.1bn and €2.4bn, compared to the €2.49bn it reported for 2022.

Insulation foam specialist Covestro declined to give a range for its expected profits this year, saying only that they would be “well below” 2022. Last year, its earnings before interest, tax, depreciation and amortisation were €1.6bn, nearly half of what they were the year before.

“The sharp rise in energy and raw material prices during the year, especially in Europe, put a strain on the company,” Covestro said.

Evonik said that recovery in 2023 would depend on energy prices and inflation, but also the health of the global economy “especially with respect to China”.

Its share price, which has fallen by just under a fifth in the past year, was flat on Thursday morning. Covestro’s shares fell nearly 4 per cent, adding up to a 14 per cent drop in the past year.

Lockdowns in China have hit the chemical industry hard. It is a large and rapidly growing market at a time when demand in Europe has weakened.

BASF, which announced a €7.3bn writedown in January because of the loss of Russian assets, has been criticised for its dependence on the country.

It is currently building a €10bn plastics manufacturing facility in China, which it says will support growing demand there.

Roughly 8 per cent of Evonik’s sales are in China, making it the company’s third-largest market after the US and Germany. Covestro, which last week announced plans to build a big plastics plant in China, derives just over a fifth of its revenues from the country.