Since this debate is about a lot of money, perhaps even about the future of this country, and because everyone here has their own interests, let’s first give an outside view: Anna Wolf says that she has been observing the chemical industry for ten years, and in all these years the companies have always presented themselves as very self-confident and successful. “The self-perception was: ‘We are Germany’s model industry,'” says the industry analyst at the Ifo Institute. BASF, Bayer, Fresenius: Big names and tens of thousands of jobs. But little of the former pride remains. “That has now completely turned around,” says Wolf. The situation in the chemical industry is “extremely critical.”
Seen in this light, the Russian war of aggression against Ukraine was also an attack on the companies’ business model. Previously, says Wolf, energy prices were “roughly at the same level as prices in the USA”, but today prices are “three times or more above the price level in the USA”. This means that companies are no longer competitive. And out internationally.
This is devastating for companies that need a lot of energy. And chemical companies need a lot of energy. Around a quarter to a fifth of the electricity from all German industry goes to chemical companies.
That’s why Christian Hartel has an important appointment in the Chancellery this Wednesday. For the CEO of Wacker Chemie, but also for others, for example BASF CEO Melanie Maas-Brunner and Covestro CEO Markus Steilemann, it will be one of the most important, perhaps even the most important, appointment this year: you will meet Chancellor Olaf Scholz (SPD), Economics Minister Robert Habeck (Greens) and state leaders such as the Bavarian Prime Minister Markus Söder (CSU). Politicians can expect a lot.
They complain, they plead, they warn and threaten
If you have listened to the managers over the past few weeks, their complaints, their pleas, their warnings and their threats, then it is about nothing less than their existence and that of Germany as a location for the chemical industry. The once proud managers are now coming to Berlin as supplicants, and this is a role that is new for them. Sure, after so many good years of self-confidence. But it’s also about a lot.
There is an industrial electricity price on the table, subsidized by the state, although the managers prefer to talk about a transformation electricity price or a bridge electricity price; that sounds more like temporary help. Although: Nobody can say today how long this bridge will be. Or, also this: whether it will be just one bridge among many.
“When we build something new, we think carefully about where the framework conditions are best”
An inquiry to Wacker Chemie. How exactly is this supposed to work with this bridge? They are calling for a “transformation electricity price of four cents per kilowatt hour,” says a spokesman. “For a limited time and for a transitional phase,” “until enough cheap electricity from renewable sources is available.” The company does not want to say how high energy costs are at Wacker Chemie for “competition reasons”. In fact, energy costs are “by far the largest item in our manufacturing costs”. Wacker Chemie needs around four terawatt hours of electricity per year at the German sites in Burghausen and Nünchritz alone. That roughly corresponds to the consumption of 1.2 million households. Compared to Asian countries and the USA, electricity in Germany is three to five times more expensive, said the spokesman. “When we build something new, we think carefully about where the conditions are best.”
For example in China. You can think of this as a coincidence or as perfect timing: Wacker sent out a press release on the day before the summit in the Chancellery. The occasion: A ceremony for new production lines at the Zhangjiagang site in the Chinese province of Jiangsuin. Amount of investment: 150 million euros. China instead of Germany and Europe, Guangdong instead of Ludwigshafen: Here, in the southern Chinese province, BASF colleagues are currently building a huge new Verbund site. It will be the company’s third largest and will cost the company around ten billion euros by 2030. Loyalty to Germany as a location? In Berlin we know that companies can do things differently.
Which politician wants to watch an industry move away?
If the industry approaches politicians this Wednesday and makes its demands, then it will certainly have a better negotiating position. Some even think that the industry’s potential for pressure is quite large. Because who, as economics minister, wants to be there when thousands of jobs move abroad?
Politics is divided. Habeck, his party The Greens, and the SPD parliamentary group want a state-subsidized industrial electricity price for a transition phase, the FDP party leader and Finance Minister Christian Lindner sees it differently. Subsidies did not solve problems but created new ones. On the one hand, citizens and smaller companies would support the large and energy-intensive companies. At the same time, industry would become less willing to invest in renewable energies in the long term. Hard to say who is right.
Scholz and Habeck will listen carefully when Markus Steilemann, head of the Leverkusen-based plastics manufacturer Covestro and also president of the Chemical Industry Association (VCI), explains his situation. The manager says the country is currently “at a crossroads: it is deciding whether we will have a future as a successful industrial location.” When it comes to the subsidized electricity price for industry, the chemist and business economist Steilemann almost waxes poetic: “The house is on fire, and the industrial electricity price is fire-fighting water,” he says. So bring on the fire brigade.
An Arab company could also benefit in the end
The energy costs of Covestro, which was spun off from Bayer eight years ago, tripled between 2020 and 2022 to an impressive 1.8 billion euros. This was one of the reasons why operating profits halved last year; it will fall even further this year. The company once calculated what a state-capped electricity price of, for example, six cents per kilowatt hour would mean. In this case, the DAX company would save a low to mid-three-digit million amount between 2024 and 2030 – every year. The state oil and gas company Adnoc from the United Arab Emirates could also benefit from this. Because he would like to take over Covestro and has now started negotiations with the management around Steilemann. The investors from the emirate are reportedly offering 60 euros per share, which corresponds to a valuation of the plastics company of 11.5 billion euros. The share prices are low, the industry is worn out by high energy prices: Is it really proof of the attractiveness of German chemical companies and Germany as a location when foreign investors make their offers?
Hardly, says Matthias Zachert, head of the Cologne-based specialty chemicals company Lanxess. More of an alarm signal. “Many German chemical companies are weakened on the stock market due to the locational disadvantages” and could therefore “easily become the focus of foreign investors,” he warned in an interview at the weekend. Zachert wants to close a particularly energy-intensive plant in Krefeld, Lower Rhine, in 2026: “We’ve been burning money here for some time,” complains the manager. A good 60 employees are affected. The M-Dax Group is looking for buyers for another facility there. There should be no more major investments in Germany until conditions have improved. There is also a savings program, and redundancies for operational reasons are not excluded in Germany. Lanxess employs half of its 13,000 employees worldwide here. “Politicians must finally wake up now,” demands Zachert. He also says de-industrialization is beginning.
The problem right now is that everyone needs money somehow
Others see it even more drastically: “From this point of view, de-industrialization has already begun,” says Arne Rautenberg, fund manager at Union Investment and expert on the chemical industry. The construction and automotive industries, two important customer sectors, are weakening and, according to Rautenberg, business with China is not going well at the moment. And now many companies were wondering how they can continue to work profitably in Europe and especially in Germany in the future. “BASF has already given an answer,” says Rautenberg. At the headquarters in Ludwigshafen, ten percent of production capacity would be reduced and two energy-intensive plants – one for ammonia and one for TDI, a precursor for plastics – would be shut down. The federal government lacks a “realistic view of the dangers that the business location is exposed to,” says Christian Kullmann, CEO of the Essen-based specialty chemicals group Evonik. In addition to the high energy costs, the “lame bureaucracy and the dilapidated infrastructure are also leading to more and more companies going abroad.”
Can politics let this continue now? Or should it support the industry? And if so: for how long actually? Until the energy transition is achieved and green electricity is available to everyone? This can take a while. And even though the chemical industry needs a lot of energy, it is not alone. “It seems to me rather unlikely that the industry will receive major subsidies from politicians,” says Anna Wolf from the Ifo Institute. Many industries are currently having energy problems. “And it is not foreseeable that energy will become cheaper in the medium term,” so industry and politics are “in a very difficult situation.” But what if the petitioners from Berlin end up moving on? To where it costs less? What if de-industrialization costs more and more jobs? It is “certainly not an empty threat if the industry announces that it will relocate production to the USA or China,” says the Ifo analyst. From an economic point of view, this could even make sense. “The question is how to deal with it politically.”
And that’s exactly the problem. In the end, no chancellor, no economics minister or prime minister wants to be responsible for one of Germany’s largest industries packing its bags and leaving.