Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The EU must decide which industries to prioritise or face an exodus of energy-intensive sectors, warned the head of Covestro, as the German chemicals group announced investments of up to €4bn in China and the United Arab Emirates.
“There’s a political decision at one point in time to subsidise, strategically, value chains that you want to keep,” said Markus Steilemann, chief executive of the group owned by Abu Dhabi’s national oil company, in an interview.
Any moves by the EU to subsidise the local chemicals industry should, however, be seen as a “last resort”, he said. European chemicals companies were better advised to “leave behind” energy-intensive production to focus on innovation, Steilemann added.
His comments come as chemicals companies across Europe have been struggling with record-high energy prices and a tangle of complicated green legislation from the EU.
At the same time, Chinese competition has been putting pressure on demand for local products, stoking fears about plant closures and job cuts.
Even before the Iran conflict, European producers, battling vast oversupply of cheap chemicals from China, lodged a record number of anti-dumping complaints with the European Commission.
European chemical production fell by 3.2 per cent in the first quarter from a year before, while exports declined by 12.4 per cent, according to Cefic, which represents the bloc’s chemical industry.
In its first big investment since it was taken over by Adnoc, Covestro on Tuesday announced the construction of a new facility in China for MDI, a chemical used in foam-based products such as housing insulation. The company would also carry out a feasibility study for a similar plant in the UAE, it said, with the investment in each facility totalling up to €2bn.
The decision to open a plant in Shanghai was not a move “against Germany or for China”, Steilemann added, but one guided primarily by the region’s stronger growth prospects.
“The market in Europe, as well as the growth rates in Europe for these type of products and its value chains, the construction industry, the coal chain industry, housing and insulation simply do not have the size,” he said.
At the same time, high energy prices in Europe meant that energy-intensive chemicals produced locally were not competitive on global markets, Steilemann said.
“We do not have the overall right frameworks in Germany as well as in Europe,” said Steilemann, who has led Covestro since 2018.
The future of industry in Germany lay in capitalising on the country’s research expertise in chemicals to develop cutting-edge products, he argued.
