Spain's chemical industry bucked the trend

Spain's chemical industry bucked the trend

Time: 2024/11/5

Source: Global Paint network

Production and sales increased steadily, and transformation support was still insufficient

Recently, statistics released by the Spanish Federation of Chemical Enterprises (Feique) show that in 2024, Spanish chemical sales are expected to increase by 4.8% compared to 2023, reaching 86.5 billion euros, while production is expected to increase by 7.1%. Feique forecasts that Spanish chemical sales in 2025 will increase by 4.2% compared to 2024, bringing the country's chemical sales above the 90 billion euro mark for the first time, while chemical production will increase by 3.2%. Compared to other European countries, especially traditional economic powers such as France, Germany and Italy, Spain's chemical industry and macroeconomic data this year are very impressive. However, the Spanish industry also suggested that there are some hidden concerns in the Spanish chemical industry worth noting and solving.

Spain's good numbers for the chemicals sector are, above all, thanks to the macro economy. Recently, the International Monetary Fund (IMF) raised its forecast for Spain's GDP growth in 2024 to 2.9% from 2.4% in July, which is one percentage point higher than its forecast a year ago. Spain's GDP is expected to grow by 2.1% in 2025. As a result, in both 2024 and 2025, Spain will grow much faster than the two largest economies in the euro zone, Germany and France. According to the same IMF forecasts, Germany will see zero growth in 2024, while France will grow by 1.1 per cent.

In Spain, healthy macroeconomic data permeated well into the chemical sector. In 2024, strong domestic demand and a recovery in exports enabled the sector to weather the storm better than its peers in other major euro area economies.

In the unstable post-COVID-19 period, with global chemical prices soaring, Spanish chemical sales increased significantly in 2021 and 2022, but with prices falling. Spanish chemical sales in 2023 were down nearly 7% compared to 2022, and production was down 0.7% compared to 2022. In 2024, the situation has significantly improved, as Feique's director general Juan Rawat predicted in July. "Spanish chemical prices are recovering from their 2023 lows and by the end of the year average selling prices should reach pre-COVID-19 levels," Rawat said. Exports remain healthy because domestic demand is strong. In Spain, production of basic chemicals is recovering strongly, which is important because this subcategory saw the biggest decline in production in 2023, down 11%, but increased 8% in the first seven months of this year. Nearly all chemical segments performed well, including paints, personal care products, pharmaceuticals. Given the economies of the countries around us, the Spanish economy is a bit like a rocket."

However, Teresa Lassero, president of Feique, said that the overall positive figures for the Spanish chemical industry masked the poor performance of key sectors. While consumer chemicals, specialty chemicals and health care products are enjoying healthy growth, basic chemicals continue to struggle with high energy costs, even if the Spanish basic chemicals sector is performing better than the rest of Europe.

Public support for the transition to energy-intensive industries is too low in Spain compared with peers such as Germany or France, making the survival of the basic chemicals sector worse, Mr Lassero said. In the parlance of the European Union, this is called compensation for the cost of carbon emission rights. In 2024, Spain's figure is expected to be just 300 million euros a year, far less than the billions offered by neighboring countries, Feique noted. Mr Lassero said: "Compared with the few countries that have established a similar system, the compensation for emissions charges in Spain is almost non-existent. The problem is that the production of basic chemicals or other similar energy-intensive industrial sectors is crucial to maintaining the strategic autonomy of the Spanish economy. We need more competitive energy prices and faster decarbonisation, which is key to the future of the manufacturing economy in Spain and Europe."

Lassero said the Spanish chemical industry needs a higher investment of €3 billion per year than the rest of Europe to achieve decarbonisation targets between 2025 and 2050. According to the association's forecasts, government support for the Spanish chemical industry of 300 million euros per year is far from enough, and decarbonisation targets will be difficult to achieve if all efforts come from the private sector. Of the €3 billion needed annually, €1.7 billion is for new and retrofitting chemical plants, €850 million for operational adjustments during the technology transition, and €450 million for overhaul and adaptation to new regulations, the association said. Only in this way will Spain's chemical industry be able to achieve its target of reducing CO2 emissions by 12.4 million tonnes per year by 2050.

In addition, the domestic situation in Spain also has a negative effect on the Spanish chemical industry, Feique said. Spain's healthy macroeconomic and chemical sector figures for 2024 come against a backdrop of political difficulties. Spain is not immune to the current trend of strong polarization in Europe. Since July 2023, Pedro Sanchez's cabinet has been unable to pass the 2025 budget because the ruling center-left government has only a minority of seats in parliament. While under Spanish law, the cabinet can extend this year's budget into next year, it would be significantly weakened if it fails to pass a new budget to fulfill its recent election promises. The political situation is certainly not good for Spain's chemical industry, which needs investment and transformation funds, as well as policy certainty.

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