Dr Moncef HADHRI (Chief Economist) Cefic Industrial Policy mha@cefic.be September 25, 2014

1. The European Chemical Industry: Trends and Outlook ECSPP Members Meeting and European Symposium Dr Moncef HADHRI (Chief Economist) Cefic Industrial Policy mha@cefic.be September 25, 2014

4. The European chemical industry is key for economic development and wealth Sales 2012: € 558 billion • 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) (share %) Source: Eurostat and Cefic Chemdata International

5. It is one of the largest industrial sectors in many regions of the European Union Source: Eurostat SBS and Cefic analysis June 2014 EU chemicals is the firth leading manufacturing sector, accounting for 7% of total added value

6. EU industrial platform is losing importance in the EU economic activity • The EU ambition is to get back to 20% GDP contribution

7. Despite the strength of the chemical sector, current situation gives cause for concern Output remains nearly 10% below the pre-crisis level

8. EU chemicals sales almost double in 20 years, while its world market share halved • This is a “dilution effect, a trend expected • to continue in the future 4 Source: Cefic Chemdata International

9. World chemicals output doubles as emerging markets sales surge • Growth has been fastest in emerging economies 3 Source: Cefic Chemdata International

10. And this trend will continue Global chemicals production in value 2030 2013 2002 CAGR World 3.7 % (2013-2030) Source: IHS and cefic analysis (for 2002) • Growth in post-recession Europe remains low, mainly • due to mature markets and ageing population

11. What are the key factors affecting competitivenessof the EU chemicals sector? • Energy and Raw Materials • Regulatory Stability and Consistency • Capital Investment • Innovation • Access to Markets • Skills and People • Logistics and Infrastructure

12. Advantaged energy and feedstock prices are a clear enabler of competitiveness • This is boosting profits abroad and attracting billions • of dollars in investment

13. Ethylene cost stands for 60% of total production cost • Ethylene is the highest volume building block in • the chemical industry globally

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

15. 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

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

17. Investment is a key factor pointing to a loss of market attractiveness for production • Capital intensity is both an indicator of loss of attractiveness • as well a driver of future competitiveness 4

18. Europe is facing a number of challenges to its leadership on the global market • Geographicalshift towards the Middle East and Asia • Structuralovercapacities in a number of chemicalsegmentson EU markets • The chemical industry will continue further consolidation • Onlystrongchemical clusters in Europe have a future • Shift in business models • Energy efficiency and rawmaterials management requestadaptedprocesseswithin the chemicalindustry • Innovation and high techsolutionshold the keyfor the future • Demographical shift and climatechange • Chemical industrywill provide solutions to these challenges. • Butwillit happen in Europe?

19. Can we remain Competitive? • High energy and feedstock costs • High Regulatory Compliance Costs (egREACH) • 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 • 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

20. Sustainability as a strategic choice for global challenges • 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? • 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? Health & Nutrition Construction & Housing Energy &Resources Mobility & Communication • 50% more primary energy needed in 2030! • What is the ideal energy mix of the future? • How big is the stake of renewable energy? • 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 ?

21. Where will we be tomorrow? • “He who speaks about the future lies, • even when he tells the truth.” • (Proverb from Middle East) GDP Cost TRADE European Chemicals Growth CUSTOM ERS CHEMICA LS CONFID ENCE

22. Where will we be tomorrow? 2013: - 0.3%, 2014: 1.3%, 2015: 2.0% Outlook revised slightly down compared to June 2014

23. Back-Up Slides

24. Providing modern products and enabling technical solutions in virtually all sectors Base chemicals Transfer of Fine and specialtychemicals intermediate goods innovation sustainability competitiveness

25. 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

26. The de-industrialisation in Europe is more than reality • Less demand is generated for the EU chemicals industry