German rubber industry grapples with high costs despite sales growth

Frankfurt, Germany – The German rubber industry association WDK has reported 4.5% year-on-year growth in sales to €10.4 billion for 2022, amid continued cost pressure on margins and profitability.

The higher sales reflect “exorbitantly rising costs for raw materials, energy and logistics”, caused by external factors including the Ukraine war, microchip shortages and natural disasters, WDK said 6 March.

Germany's rubber manufacturers, noted WDK chief economist Michael Berthel, have faced "logistical impairments and/or production downtimes in the upstream process chain."

At the turn of the year, there were also challenges around cost increases linked to a weak euro in relation to the US dollar, the industry analyst also pointed out.

According to Berthel, companies were able to compensate for these “diverse and significant” cost increases through higher sales, but only to a limited extent.

In particular, he noted that the cost increases for raw materials in 2022 were “consistently in the high double-digit percentage range.”

For example, Berthel explained that the average year-on-year price increase for silicone rubber was almost 70% and almost 65% for carbon black.

Price increase for most important synthetic rubbers and chemicals, however, were relatively ‘moderate’ with average rises of between 15% and 50%.

Meanwhile, the cost of electricity more than doubled during 2022, as did the price of gas for rubber processing.

Amid these pressures, the rubber industry as a whole only saw an increase of 4.5% in sales to €10.4 billion, still below the €11 billion reported in 2019.

Reviewing market sectors, WDK said demand from the automotive industry remained slow for most of 2022, due to shortages of semiconductors and cable harnesses from Ukraine.

However, the industry body noted an improvement in the second half of 2022, which led to significant growth compared to the previous year.

While the non-automotive industrial business performed “satisfactorily”, WDK noted recessionary trends in the construction industry and “lost momentum” in the consumer products segment due to rising inflation.

Regarding the outlook for 2023, WDK said prospects remain “uncertain”.

With estimated sales of €10.6 billion, the industry is expected to report 2% growth in sales, though many production-side obstacles, such as “very high costs” remain in place.

“In the first quarter, the sector's economy is very moderate and companies live from the order backlog,” said Berthel.

“The biggest concern in the industry is currently Germany,” he added, noting that the country’s competitive position has deteriorated internationally.

This applies to the competitive price situation as well as the high labour costs, Berthel adding that rubber companies are also exposed to high corporation taxation due to the EU ‘green deal’.

The WDK economist concluded with a stark warning that, at this rate, German rubber companies will not be able to deliver innovation and “an exodus is imminent".