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ECEG EMCEF Conference Prague, 23/24 March
2006 Franco Bisegna, Senior Counsellor EU
Government Affairs
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European Chemical Industry leadership is at risk
Rest of the World
Breakdown of world chemicals production (excl.
Pharmaceuticals) 2004 1.304 Trillion
China
Japan
Others 5.0
Asia excluding Japan China
China 8
Latin America
EU25 32
United states
Japan 10
Rest of Europe
Asia 13 Excluding Japan and China
Rest of Europe 4
Latin America 4.0
EU 25
USA 24
Evolution of shares of world production
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European Global Competitiveness is at Risk

• Slow demand growth in Europe, high demand growth
  in Asia,esp. in China
• Increasing imports into Europe from Asia and
  Middle East,(not only chemicals, but also
  finished goods) with high pressure on prices and
  margins)
• Delocalisation of customer industries (not only
  textile and footwear)
• High production costs (feedstock, labour,
  regulation etc.)
• Highly regulated environment (chemical industry
  and customer industries)

• Decreasing attractiveness for investments

• Less RD spending

• Erosion of global production share

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EU chemical industry consumption structure
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Sectoral breakdown of EU chemical industry sales

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Number of enterprises sales by employment
size-class
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Survey on Impact of REACH on Chemical SMES
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KPMG Study on REACH impact assessment (1)

• Case study in four industry sectors
• Common industry activities
• Critical substances
• Issues studied
• Availability of substances/preparations
• Competitiveness
• Innovation
• Benefits
• Recycling recovery

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Annex
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KPMG Study on REACH impact assessment (2)

• Methodology
• - Top down (DU -gt F -gt CS)
• - Bottom up (CS -gt F -gt DU)
• - Comprehensive spread sheet
• - Strict internal quality control
• - Refinement and endorsement by the working
  group
• Participation
• - 34 companies, of which 6 SMEs
• - 100 companies attending sector workshops
• Third party verification
• Validation in sector workshops
• Validation workshop with Working group

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Availability of substances (1)

• Vulnerability
• Critical substances investigated limited
  vulnerability
• SMEs up to 17 of portfolio vulnerable (lt 100
  t/yr)
• Large CS small part of portfolio analysed
  indications
• of low vulnerability
• Strong tendency to maintain portfolio
  preconditions
• Absorb or pass on cost/possibility of funding
• Communication in supply chain

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Availability of substances (2)

• But registration cost are up to 20 of turnover
  rationalisation of portfolio likely, depending
  on
• Profitability of substance
• Strategic importance
• Customer relations
• Life cycle
• Effects of rationalisation can be large
  (re-engineering/ requalification)
• (In)organics sector withdrawal primary raw
  materials not likely shift from secondary raw
  materials/fuels to primary is possible

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Competitiveness (1)

• Increase of product cost at CS up 6 - 17
  (one-off registration cost)
• Increase of product cost dilute in the supply
  chain (-gt F -gt DU)
• But
• F and DU confronted with price increase of more
  substances/preparations than studied
• REACH cost are only part of cost pressures on
  profit
• Passing on of cost depending on negotiation
  power may be more difficult for SMEs,
  especially in supply chain with global sourcing.

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Competitiveness (2)

• Uncertainty in (in)organics sector about
  interpretation of REACH
• Companies do not expect loss of market share or
  delocalisation because of REACH alone
• Serious risks at loss of intellectual
  property/confidential business information

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Competitiveness (3)

• Conclusions for the chemical industry
• Lower volume substances (lt 100 t/a) are most
  vulnerable
• Limited evidence for withdrawal of critical
  substances
• One-off costs can be significant and can trigger
  portfolio rationalisation
• Costs for reformulation/re-engineering can be
  significant in case of substantial withdrawal
• Effects on SMEs can be high (pass on of costs,
  funding of registration costs..)
• Impact on innovation is uncertain (no increase in
  RD budget, diversion of resources time limited,
  reduced diversity of substances)
• Some benefits have been recognised