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Business conditions

GDP and Chemical Production in 2012
Chart: GDP and Chemical Production in 2012

The economic environment

The public debt crisis of the established economies remained the dominant economic force in 2012. The U.S. economy was harmed by the debate about a higher debt ceiling and the length of time it took for a deal on the “fiscal cliff.” North America posted growth of 2.3% in 2012. In Europe, the debt situation in several countries worsened, with the result that more aid was requested from the European bailout facility. There was no economic stimulus in many countries because of the austerity measures. Against this background, large parts of Western Europe slipped into recession with contraction of 0.2%. Germany posted growth of 0.9% in 2012, which was much better than the overall trend in Western Europe. The emerging economies likewise lost momentum. At 7.8%, growth in China was relatively weak but improved again at the end of the year. Overall, global economic growth slowed over the course of the year to 2.2%.

With sometimes high gains, the global capital markets – though volatile – broke free of the sluggish economic trend in 2012. The stock markets benefited from growing hope in the second half of the year in particular that lasting progress was being made in addressing the European public debt crisis. Germany’s lead index, the DAX, gained nearly 30% for the year, putting it among the world’s strongest indices. Japan’s Nikkei Index, up about 23%, also posted considerable growth, some of which, of course, was attributable to the country’s domestic economic recovery following the natural disaster in spring 2011. The U.S. Dow Jones Index and the British FTSE 100 also showed positive growth of a good 7% and nearly 6%, respectively.

The exchange rate between the euro and the U.S. dollar was slightly less volatile in 2012 than in the previous year. Against the backdrop of the European public debt crisis, the U.S. dollar gained tangibly on the euro up until around the middle of the year. In the second half, however, it gave back all those gains as a result of the stabilizing measures taken by the European Central Bank and the International Monetary Fund. At the end of the year, the euro was worth US$1.32, which represented a decrease in the value of the U.S. currency of about 2.3% in 2012. Its average price for the year was US$1.29, down sharply from the prior-year price of US$1.39. Due to the regional positioning of our business, a stronger U.S. dollar generally has a positive effect on our earnings. Centralized hedging activities limit any impact that cannot be neutralized by ensuring that production and sales take place in the same currency area.

Value of the U.S. Dollar against the Euro
Chart: Value of the U.S. Dollar against the Euro

Despite further declines in economic momentum, the volatility of the raw material markets during the year gave way to a more stable price level at year-end. As a purchaser, we are particularly affected by the price trend for petrochemical raw materials, as it has a material impact on our production costs. Our most important strategic raw material, butadiene, was far more volatile than usual over the course of the year, with prices increasing sharply in the first few months, in particular. This trend reversed later in the year. By the end of 2012, butadiene was actually trading slightly below the prior-year level.

The chemical industry

The general economic trends had an impact on the chemical industry as well, where production growth was much lower than we expected, at 1.4%. The individual regions also lagged behind our forecasts. The growth rates of 6.0% in China and 1.5% in the NAFTA region reflected the weak economic development. The Asia-Pacific region was the industry’s growth engine with a gain of 3.3%. In Europe, however, the industry could not escape the recession, shrinking by 2.0%. Production in Germany receded even further, down 3.3% on a strong prior year.

Evolution of major user industries

There was a slight decrease of 0.2% in global tire production. This decline was centered on Europe, down 5.0%, and the Americas, down 3.8%. In Asia, by contrast, output was up by 3.4%. China and India were the main drivers of this trend, with growth of 5.5% and 5.3%, respectively. In the heavy-duty commercial vehicle sector, the original equipment business was satisfactory only in North America and Japan. Elsewhere, the economic situation resulted in a downward trend in truck tire production. The demand for replacement tires receded worldwide in 2012. OEM tires for cars and lightweight commercial vehicles developed in line with automobile production. Customers spent noticeably less on replacement tires.

Global automobile production rose 4.9% in 2012. At 16.8%, most of this growth was in the NAFTA region, where a substantial backlog had built up in the several years since the financial crisis. Japan and Southeast Asia likewise posted high growth rates of 20.5% and 31.5%, respectively. Of course, these were attributable to the exceptionally low production levels in the previous year resulting from the natural disaster in early 2011. Overall, Asian automotive production rebounded with strong growth of 9.2%. In Europe, a particularly important market for LANXESS, the automotive sector was also impacted by the macroeconomic problems, with production down by 7.6%. In Germany, too, output declined by a steep 7.1%. Likewise, production in South America was impacted by the economic situation, decreasing by 2.0%.

Global production of chemicals for the agricultural industry expanded by 3.0% due to continued high demand for agricultural products. The drought in the NAFTA region caused a slight decrease of 0.6% there. By contrast, growth of 3.9% was recorded in Western Europe, with production in Germany expanding by 6.1%.

The construction industry worldwide posted growth of 3.0%. Europe was the biggest drag on the global trend, with contraction of 4.6% in Western Europe. Germany showed a slightly positive trend with an increase of 0.4%. The main growth engine was Asia, especially China and India where business was up 8.7% and 7.4%, respectively. Construction in the NAFTA region remained slow, with a gain of 2.0%.

Evolution of Major User Industries in 2012
         
Change vs. prior year in real terms (%) (projected) Tires Automotive Agrochemicals Construction
         
Americas (3.8) 12.1 (0.2) 2.8
NAFTA (3.7) 16.8 (0.6) 2.0
Latin America (3.9) (2.0) 0.4 6.7
EMEA (5.0) (7.6) 4.3 (3.1)
Germany (7.8) (7.1) 6.1 0.4
Western Europe (7.7) (9.8) 3.9 (4.6)
Central and Eastern Europe (1.5) 4.4 8.8 8.8
Asia-Pacific 3.4 9.2 3.8 3.8
World (0.2) 4.9 3.0 3.0
 

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