Rainy Days -The recession that has had the entire world in its grips over the last year has shown just how intertwined the chemical industry is with nearly all businesses around the globe. The dramatic drop in demand from downstream sectors set off a domino effect within the chemical industry, and the way to recovery looms long. Dr. Hubert Mandery took over the position of director general of Cefic in the midst of the crisis; he took the time to tell Brandi Schuster about his new role, where he sees the specific weakpoints in the industry and what Cefic has been doing to help the European chemical industry recover and grow.

CHEManager Europe: You took over the role of director general of Cefic at the beginning of November. What challenges are you facing in your new role?

H. Mandery: Today my role as new director general of Cefic is to continue to provide a strong support and quality services to our members and to help create a more favorable business environment for chemicals production in Europe. At the same time, I want to enhance the role of our industry as enabler of sustainable solutions.

As a reminder, the European chemical industry is still the leading chemical industry globally, representing 29,000 companies that produce 30% of the world's chemicals and employ about 1.2 million people.

How do you perceive the current mood in the industry?

H. Mandery: The chemical industry in Europe is seriously affected by the economic and financial crisis and therefore the current mood is relatively subdued. The worldwide financial crisis and the spill-over into the real economy are having a severe negative impact on many of the chemical industry's key downstream sectors, e.g. automotive and construction. The European chemicals industry is currently experiencing a modest and fragile recovery. It will take some time before pre-crisis production levels will be reached again.

What are your main priorities at the moment?

H. Mandery: My short term priority is - with no surprise - the economic crisis and measures to improve the situation for our industry. Other key priorities are the implementation of the recommendations of the High Level Group on the Competitiveness of the European Chemicals Industry, Reach and the Emission Trading Scheme, ETS. I would like to stress that the European chemical industry is fully committed to implementing Reach. Cefic has taken numerous initiatives to assist its members in meeting the legislative requirements, despite the extremely ambitious timeline. ETS too, is a considerable challenge, both in terms of its workability as well as the global competitiveness aspects.

A recent study conducted by Celerant Consulting shows that the crisis has helped chemical companies to discover weaknesses in their own structures. What would you identify as weaknesses in the industry - in other words, where did the industry go wrong in the years leading up to the recession?

H. Mandery: The European chemical industry has always made great efforts to adapt its structure to the business environment and societal needs. Of course, this crisis will accelerate certain trends and in consequence the adaptation processes in the industry. In the coming decade, there will be a strong societal trend towards decarbonization and dematerialization of the economy, which will force the chemical industry to adapt its production processes even further.

What changes has the worldwide economic downturn brought to the European chemical industry?

H. Mandery: The magnitude of the economic crisis was much more severe than expected and many companies were certainly not expecting such a dramatic downturn.
The chemical companies are experiencing strong pressure on margins due in particular to the lack of demand from customers and weak consumer spending. Moreover, the European chemicals industry is facing additional pressure from its competitors outside Europe - mainly from Middle East, where new petrochemical capacity is being built-up and very likely a large proportion of its output will find its way into European markets.

Some sectors are particularly badly affected, notably basic inorganics, petrochemicals and polymers, where the slump in demand from their downstream markets has forced sharp reductions in output. Other chemical sub-sectors are less affected by the crisis, like consumer chemicals and specialty chemicals, which recorded a less-significant decline. All in all, the European chemicals industry appears to have reached its lowest point in December 2008, and since that time, production has been dragging along posting mild growth each month at best, but remains sharply down compared to 2008 figures.

Talks of an economic upturn have been making the rounds recently. Where is the European chemical industry on the road to recovery? What role does Cefic play in helping companies get back on track?

H. Mandery: The worst would seem to be over in the chemicals industry in Europe. In line with the improvement of the global economic situation, European chemicals production is experiencing a modest and fragile recovery.

However, the road back to "normal" growth is very long and some uncertainty is still surrounding the business climate for the next months. With no doubts, the current recovery has been highly dependent on the coordinated stimuli provided by governments. These have come at the cost of very large increases in public debt. In order to prevent this running out of control, governments will soon need to reverse the outflows and rebuild their own financial stability. Consumer demand must now become the driver of growth over the coming months.

Overall, Cefic welcomed the European and National Economic Recovery Plans aimed at restoring consumer and business confidence. We made some concrete suggestions for measures benefiting the chemical industry directly and indirectly. Cefic helped small and medium enterprises getting European Investment Bank loan facilities for Reach-related activities, and Cefic made a modest own contribution in this difficult financial situation by reducing the membership fee for the coming year.

What does the industry need to do long-term in order to be prepared the next time the world economy takes a nosedive?

H. Mandery: The European chemicals industry is facing several challenges relating to its competitiveness. The key components of competitiveness refer to advantage in costs and in know-how, and comprise parameters such as feedstock and energy cost; innovation and R&D; infrastructure; regulatory framework; and labor costs.

As said, Europe suffers from competitive disadvantages in terms of energy and feedstock costs and a burdensome regulatory framework. At the same time, the integrated nature of our industry and the presence of strong clusters together with a high-skilled labor force constitute advantages. We need to further strengthen areas where we have competitive advantages, e.g. in innovation and to improve the situation where there are weaknesses. For example, the liberalization of gas and electricity markets will reduce the costs of energy, while improved access to renewable raw materials can lower feedstock costs. A stable and predictable, cost-effective regulatory framework is of utmost importance.