Handelsblatt: stockpiling may be due to avoid recession in Germany

Supply difficulties and concerns about material shortages are increasing demand among manufacturers of industrial intermediates, such as steel, semiconductors and plastics, according to Handelsblatt. Many companies in the respective sectors cite record data – because many customers replenish their inventories to be able to deliver despite the threat of shortages.

The head of the steel trading company Klöckner & Co. he even spoke of “panic markets” in the customer industries – and doubled profits. Real estate service providers like JLL are recording record demand for storage space: With approximately 2.3 million square feet of warehouses and logistics properties, JLL leased more space than ever before in the first quarter.

The economy expects continued problems in supply chains due to the war in Ukraine. “The manufacturing industry is full of order books and is trying to secure every available input product,” said Markus Mayer, a chemical expert at Baader Bank. “It wants to be able to deliver and is afraid of further price increases.”

In fact, stockpiling raises prices further. This is according to the economic research of the association “Die Familienunternehmer”, which is at the disposal of Handelsblatt. According to the survey, the purchase prices of intermediate products increased by 56% in April compared to the previous year. For raw materials, the increase was 46%.

And there is another problem: In the long run, the industry could run out of stock. The prospects are already cloudy in many industries of the later industry.

For example, the Ifo economic index, which measures the automaker’s expectations, fell from minus 21.8 to minus 30.4 points in April. “Carmakers are worried about the war in Ukraine,” said Oliver Falck, head of the Ifo Center for Industrial Economics and New Technologies.

The steelmaker is also trying to manage the big rush in order to be able to serve all customers equally. “There were customers who wanted to quadruple their orders,” Klöckner CEO Guido Kerkhoff said when presenting quarterly data a few days ago. In some cases, the steel dealer was forced to refuse such orders because otherwise there would be a risk of not being able to supply other customers.

Currently, Klöckner, like many other companies in the steel industry, benefits mainly from the high prices resulting from increased demand. The situation is similar in the chemical industry, where Lanxess, for example, has recently been able to push 30% higher prices. At the same time, the Cologne-based group of specialty chemicals is expanding its stocks. The CEO Matthias Zachert, during the presentation of the data, stated, among other things, that “from March we are able to replenish our stocks”. Zachert expects this to apply to customers, who will increase their inventories in the second quarter.

Two developments had recently prevented the accumulation of stocks. On the one hand, large parts of the chemical industry could not deliver as much as they needed due to lack of materials. Everything that came on the market was practically seized by the companies of the manufacturing industry so that they could work on their own full order books.

On the other hand, the companies deliberately kept their stocks low during the new year, because they expected better availability and a corresponding reduction in prices during the first half of the year. However, this turned out to be a deceptive hope at the latest with the start of the war in Ukraine. Instead, market prices have risen, as has energy costs.

In addition, many companies are concerned about the economic implications of a rigid coronavirus policy in China. Strict padlocks in cities like Shanghai are causing logistics to collapse in particular. In this phase characterized by many uncertainties, companies want to ensure their productivity. Storage of chemicals and plastics – if available – is therefore likely to continue for at least two more quarters, according to chemical expert Mayer.

The example of Uzin Utz shows that this prediction may be correct. The flooring technology maker is listed on CDax, which combines all Dax, MDax, TecDax and SDax stocks. The company mainly buys chemical pre-products – and is rapidly expanding its stock due to the market situation.

“It has been difficult to build stocks for the last two years because our suppliers have had very high quotas,” says sales manager Philipp Utz. “Of course, that made it difficult to build inventories as sales increased.”

Customers save for fear of price increases

Now chemical raw materials are again more readily available – while at the same time changing the demand side. “Due to the uncertainty caused by the war in Ukraine, demand is declining today, especially in Eastern Europe. This also creates free capacity to create stocks for other markets.”

Utz also observes a tendency for customers to shop with hoarding. This time the motives are different from two years ago, when the pandemic broke out: “Then it had a completely different dynamic. At that time, there was concern that the coronavirus would cause the collapse of the entire supply structure. “The toilet paper phenomenon, our customers, especially the wholesale customers, were also supplied in bulk.” This time, however, customers are mainly interested in keeping costs under control: They wanted to get as many products as possible at an even lower price.

However, the outlook for the construction market is deteriorating visibly – and as rising prices for steel and oil-based construction materials, such as asphalt, synthetics and insulation materials, make it increasingly difficult to meet current contracts.

For new contracts, on the other hand, customer budgets often do not allow for increased costs, which is why projects are not even implemented. According to a survey by the Central Association of the German Manufacturing Industry (ZDB), less than 1/4 of construction companies expect even higher sales in 2022, while a good 40% expect lower sales compared to 2021. “We are facing a difficult year,” said ZDB CEO Felix Pakleppa.

Due to the accumulation tactics followed by many companies may also be the reason why Germany has not yet reached a technical recession. Economic production increased by 0.2% in the first quarter. The previous quarter had fallen by 0.3%. Two consecutive quarters of shrinking economic output are referred to as a technical recession.

The slight growth in the first quarter came as a surprise to many experts. The increase is mainly due to higher investmentsexplained the Federal Statistical Office. The strong investments could be due in part to the fact that companies were stockpiling in the face of the crisis and thus temporarily offset the economic slowdown.

Increasing demand for warehouses and logistics

“It is very likely that there was a large accumulation of stocks,” explains Michael Grömling, an economics expert at the Cologne Institute for Economic Research. Because, while intermediate products and raw materials that are processed immediately are counted as consumption, the renewal of stocks ends up in investments. Whether this is really the case will be seen in late May, when the Federal Statistical Office presents the detailed results.

An analysis by BNP Paribas shows that this trend is supported by the turnover of leased warehouses and logistics. In the first quarter of this year, the corresponding absorption amounted to 2.33 million square meters. It is an all-time high and almost 60 percent higher than the long-term average. Absorption is the sum of all space rented, sold to owners or built by owners for themselves.

In particular, the industry is opening up new storage and logistics space. They account for more than a third of new sites in the first quarter. Logistics providers account for 30% and retailers 26%. “We are seeing companies increase their warehouses due to supply chain disruptions,” said Hauke ​​Burkhardt, head of Deutsche Bank’s Corporate Finance division.