It is hard to be gloomy on the Riviera in autumn: 24 degrees, bright sunshine, sparkling blue sea and Sir Philip Green’s yacht Lionheart nestled in its normal Monaco berth a few hundred yards from the famous casino. All is right with the world.
Gloom can be found, however, if you wander into the Ineos offices nearby and ask another of the principality’s well-known residents, Sir Jim Ratcliffe, about the future of the European chemicals industry. Ratcliffe knows more than most about the subject. He built his empire buying up unwanted chemical plants and refineries from European oil, gas and petrochemical giants (BP and ICI in particular). His big insight was that these operations were suited to funding from the bond market, not the stock market. The latter hated the cyclical swings in trading and profitability, while the former cared only if it got its money back. That move made him a billionaire and gave him the base to expand into the US, China and the Middle East.
Ineos still has a big presence in Europe, however, and Ratcliffe thinks the problems here are much more than a cyclical swing. When I went to see him in Monaco for the first episode of The Business, our new podcast, he was clear about the industry’s future, saying that he expected it to be pretty much gone in a decade’s time. That would cost a million jobs, he said, and perhaps ten million if you included all the jobs in supporting sectors.
• Jim Ratcliffe: Collapse of chemicals sector will put 1m jobs at risk
Britain, perhaps, is inured to deindustrialisation. I wonder how many people born since 2000 even recognise the ICI name, let alone its status as one of the world’s biggest chemical companies and a pillar of the British economy for most of the last century. The sprawling chemical plants of the northwest and northeast of England are a shadow of their former selves.
Germany and France, however, have done better at keeping their industries alive, particularly in the German manufacturing heartland along the Rhine. BASF, the successor company to IG Farben, prospered after the Second World War, perfecting its verbund system, chemicals plants with a high degree of integration and efficiency. The method found its ultimate expression at BASF’s colossal plant at Ludwigshafen, which covers 2,500 acres and is one of the crown jewels of the German economic miracle. It says something, and bears out Ratcliffe’s warning, that BASF has closed 11 different facilities at Ludwigshafen in recent years and will in future prioritise investment in China.
His argument for the demise of European chemicals is difficult to fault. Energy prices — gas and electricity — are four to five times higher here than in the US or Middle East. On top of that there are carbon taxes and tariffs on exports to the US. Tariffs the other way, for US chemicals going to the EU, are now zero, thanks to the European Commission’s masterly recent negotiations with Washington. The icing on the cake is a supply of cheap imports from China, where big new plants have come onstream in recent years: something with which Ratcliffe is intimately familiar, operating joint ventures in China, as he does, with several of the big local players.
Two things might ride to the rescue. The EU is in the process of introducing a carbon border tax. The price of imports will go up to reflect the cost of the carbon emitted in their production. The UK is following suit, although not until 2027. Most, however, think that he system will not be foolproof, nor sufficiently punishing to make a decisive difference. The other boost could be the return of cheap Russian gas, a big factor in Germany’s previous success. It could happen, but when will peace come in Ukraine? As Ratcliffe says, you cannot invest on hope alone.
The warning goes much wider than chemicals. Ratcliffe points out that the European car industry faces similar headwinds thanks, in part, to government action such as mandates to build electric vehicles that people will not buy. Porsche, like BASF a stalwart of German industry, took a €5 billion writedown last month after deciding that an important new model would have to be powered by diesel, petrol and hybrid motors rather than pure electric as planned. The other common factor is cheap competition from China. Automotive is even bigger for Europe than chemicals, accounting as it does for about €1 trillion of value against chemicals’ €750 billion. And, Ratcliffe says, energy is a powerful factor in determining wider economic growth.
The Ineos boss is also the co-owner of Manchester United, where he has been roundly criticised for making efficiencies, such as stopping free lunches for staff. In the podcast he defends his decisions and sets out his plan for the club. This is likely to fall on deaf ears, at least as far as one section of Man U fans are concerned. They want results now, not the promise of jam tomorrow.
Ratcliffe’s pleas on energy policy are likely to meet a similar stony reception. Net zero is a top priority for many politicians and many voters. Pat McFadden, the work and pensions secretary and a Labour éminence grise, was asked about Ratcliffe’s warnings on Times Radio on Thursday. He said a shift to renewable energy would help to protect Britain from price swings in international markets for oil and gas. If you listened carefully you would probably have heard a hoot of derisive laughter from Monaco in response. This is a looming political test for Labour. Reform have always been pro-fossil fuels and now the Conservatives have done a complete about-face and said they will scrap net-zero targets. That surely is a step too far for McFadden and co. But if Ratcliffe is right, their resolve will be tested by a corrosive flood of job losses.
Dominic O’Connell is business presenter for Times Radio