Dr Moncef HADHRI (Chief Economist)Cefic Industrial Policy

mha@cefic.beSeptember 25, 2014

The European Chemical Industry: Trends and Outlook

ECSPP Members Meeting and European Symposium

Contributes to 18% of the world’s chemical sales (2012)

Represents 29,000 companies (96% SMEs)

Employs 1.1 million people (2013)

Generates € 558 billion of revenues (2012)

Creates a trade surplus of € 48.7 billion (2013)

The European chemical industry is key for economic development and wealth

Sales 2012: € 558 billion

(share %)

Source: Eurostat and Cefic Chemdata International

It is one of the largest industrial sectors in many regions of the European Union

EU chemicals is the firth leading manufacturing sector, accounting for 7% of total added value

Source: Eurostat SBS and Cefic analysis June 2014

EU industrial platform is losing importance in the EU economic activity

The EU ambition is to get back to 20% GDP contribution

Despite the strength of the chemical sector, current situation gives cause for concern

Output remains nearly 10% below the pre-crisis level

EU chemicals sales almost double in 20 years, while its world market share halved

Source: Cefic Chemdata International 4

This is a “dilution effect, a trend expected to continue in the future

World chemicals output doubles as emerging markets sales surge

Source: Cefic Chemdata International 3Growth has been fastest in emerging economies

And this trend will continue

Global chemicals production in value

2002

20132030

Source: IHS and cefic analysis (for 2002) CAGR World 3.7 % (2013-2030)

Growth in post-recession Europe remains low, mainly due to mature markets and ageing population

What are the key factors affecting competitiveness of the EU chemicals sector?

•Energy and Raw Materials

•Regulatory Stability and Consistency

•Capital Investment

•Innovation

•Access to Markets

•Skills and People

•Logistics and Infrastructure

Advantaged energy and feedstock prices are a clear enabler of competitiveness

This is boosting profits abroad and attracting billions of dollars in investment

Ethylene cost stands for 60% of total production cost

Ethylene is the highest volume building block in the chemical industry globally

Barriers to growth: views from CEOs of the German chemical industry

3%

13%

14%

14%

29%

50%

56%

64%

Other

Access to finance

National tax schemes

National market regulations

Increasing international competition

Lack of qualified personnel

Regulatory requirements in the EU

Increasing costs for Energy and Raw materials

CHEMonitor, January 2011

Cumulative number of EU regulation on HSE is killing the business of chemicals

Number of EU regulations on HSE, 83% more in 9 years time

Investment in the EU chemicals industry has been following a worrying trend

Investment is a key factor pointing to a loss of market attractiveness for production

4Capital intensity is both an indicator of loss of attractiveness

as well a driver of future competitiveness

Europe is facing a number of challenges to its leadership on the global market

Geographical shift towards the Middle East and Asia• Structural overcapacities in a number of chemical segments on EU

markets • The chemical industry will continue further consolidation• Only strong chemical clusters in Europe have a future

Shift in business models• Energy efficiency and raw materials management request adapted

processes within the chemical industry • Innovation and high tech solutions hold the key for the future

Demographical shift and climate change

Þ Chemical industry will provide solutions to these challenges.

But will it happen in Europe?

Can we remain Competitive?

Large integrated domestic market with strong customer industry clusters

High international orientation and global networks to external customer industries

Skilled and motivated workers and scientists

Constant adaptation to globalised markets

Strong innovation efforts will generate new growth clusters: Efficient Energy use, health and new materials which could solve upcoming societal mega challenges

High energy and feedstock costs

High Regulatory Compliance Costs (eg REACH)

Lack of a “Common Industrial Policy” or a “Common Energy Policy”

Non-energy raw material availability and cost issues (eg. biobased feedstock, rare earths, minerals)

Mature market, ageing population, risk aversion of societies

9 billion people will live on earth by 2050! How can we guarantee

food and water supply for everyone?

What are possible benefits and contributions of plant science?

Health & Nutrition

Sustainability as a strategic choice for global challenges

67% of the world population will live in cities by 2025! What does future

architecture look like? Which materials

are needed to make energy consumption more efficient?

Construction & Housing

50% more primary energy needed in 2030! What is the ideal

energy mix of the future?

How big is the stake of renewable energy?

Energy &Resources

1.2 billion cars will drive on earth by 2020! How can we reduce

emissions and fuel consumption ?

What will future cars be made off ?

Mobility & Communication

Where will we be tomorrow?

GDP

European Chemicals

Growth

CONFIDENCE

Cost TRADE

CHEMICALS

CUSTOMERS

“He who speaks about the future lies, even when he tells the truth.”

(Proverb from Middle East)

Where will we be tomorrow?

Outlook revised slightly down compared to June 2014

2013: - 0.3%, 2014: 1.3%, 2015: 2.0%

Back-Up Slides

Providing modern products and enabling technical solutions in virtually all sectors

Base chemicals

Fine and specialtychemicals

Transfer of

intermediate goods

innovation

sustainability

competitiveness

And an important source of direct and indirect employment

% of EU Manufacturing employment (year 2010)

Source: Eurostat SBS and Cefic analysis June 2014

Chemicals contributed to 4% of EU manufacturing employment

The de-industrialisation in Europe is more than reality

Less demand is generated for the EU chemicals industry