Production from Germany's energy-intensive industrial sectors was lower in September than a year earlier for the first time in seven months, driven by lower generation from the chemicals sector.
Energy-intensive industrial production fell by about 3.3pc in September from August, according to data from German statistical office Destatis (see data and download). This was driven largely by a 4.3pc fall in output from the chemicals industry.
And overall industrial output was about 1.8pc lower than in September 2023, falling year on year for the first time since February this year.
The chemicals industry has warned of lower business confidence in the sector since the summer. Energy-intensive industrial branches previously showed signs of a slow recovery, but general manufacturing output across Germany has been on a consistent downward trajectory in recent months (see manufacturing index graph).
Manufacturing output across all industrial sectors fell on the month by about 2.5pc, having risen on the month by 2.6pc in August. Third-quarter output as a whole was about 2pc lower than in the second quarter.
Industrial economic activity has remained "very weak" recently, German economy and climate ministry BMWK said. But it expects a bottom to form in about the new year. BMWK has predicted that Germany will be in a technical recession in 2024, before a return to 1.1pc GDP growth in 2025.
The German economy started on a downward trajectory in 2022, triggered by higher energy prices on the back of a halt to Russian gas deliveries to the country. And it has since been hampered by other structural factors such as labour shortages and a high bureaucratic burden.
Higher gas prices could drive output lower
A steady rise in gas prices in recent months could lead industrial firms to curtail domestic industrial production or use LPG instead of gas for some industrial processes.
Argus assessed the German THE everyday price at an average of €40.68/MWh in October, about 56pc higher than the €25.98/MWh in February, the index's lowest point this year.
Much higher gas prices since 2022 have driven a drop in Germany's industrial gas demand. Gas use in German industry of 256.5TWh in 2023 was about 22pc lower than the pre-crisis 2018-21 average of 327.6TWh, according to Destatis data released earlier this week (see sector demand graph).
Firms either curtailed production in reaction to higher prices or switched to LPG in some processes in which gas is used as an energy carrier. But some processes, such as the production of ammonia through the Haber-Bosch-synthesis, use methane as a feedstock, which means they cannot shift to LPG as easily.
Gas used as a feedstock reacted more strongly to the energy crisis than the gas used for energy. Gas use as a feedstock in the chemicals industry fell by 36pc in 2023 from 2021, while gas use for energy fell by only a quarter. Many fertiliser producers curtailed capacity in 2023, and Europe's largest fertiliser producer, Yara, expects its European gas costs to rise on the year this winter. The producer has already indicated it will shift its focus towards cheaper ammonia production in the US and away from Europe.
Industrial gas use on track to rise in 2024
German industrial gas demand is on course to be higher this year than in 2023, based on daily data ending at the end of October.
Industrial gas use for production processes other than space heating was 746 GWh/d in January-October, about 8pc higher than a year earlier, according to Argus estimates.
But if September's industrial output drops extend to a multi-month trend, this would pull down the average for this year as a whole. Industrial demand typically falls in December when the holiday period limits economic activity, which could push down the average further. And the collapsed German governing coalition is unlikely to send strong recovery signals to the German economy.
German market area manager THE publishes a combined dataset for gas demand by industry and the power sector. Argus splits out power-sector gas demand data by assuming operational efficiencies of 39-42pc, in line with fuel use data from Destatis, and factors out seasonal demand swings linked to space heating by looking at analogue trends in the residential and commercial sector (see demand split graph). Argus' estimates diverge from Destatis' annual demand data by only about 1-3pc, except for a 6pc gap in 2021 (see Destatis vs Argus estimates graph).
