Economic and Legal Factors

WACKER sells its products and services to virtually every industry. Although our business divisions are not immune to economic fluctuations, their onset and impact may vary. Our product portfolio and broad customer base enable us to mitigate the magnitude of such fluctuations.

Orders

The terms for orders placed with WACKER vary from division to division. Most orders received by WACKER SILICONES are short term, though a small number are long term. At WACKER POLYMERS, business is based on contracts and framework agreements with terms of up to one year. At WACKER POLYSILICON, we conclude short- and medium-term contracts. An increasing proportion of incoming orders are short-term ones based on market benchmarks. Due to varying order-placement procedures at the Group, order-level reporting is not very meaningful and hence does not serve as an indicator in our monthly reports.

Operational Metrics as Leading Indicators of Future Developments

By referring to specific leading indicators based on operational metrics, we try to factor potential developments into our business plans and to allocate capacities accordingly. Since our operations are based on diverse businesses and markets, we use a number of leading indicators to gain insights into potential developments at each of our business divisions. Indicators include trends in raw-material and energy prices, as well as data from our own market research and from customer discussions.

Economic Factors Impacting Our Business

The main economic factors influencing WACKER’s business remained unchanged in many areas.

Energy and Raw-Material Costs

As a chemical company, we belong to an energy-intensive industry and require diverse raw materials to manufacture our products. Consequently, higher energy and raw-material costs affect our cost structure after a time lag. WACKER constantly strives to keep costs at a competitive level. By generating our own power at Burghausen and Nünchritz, we reduce our energy-procurement needs and, thus, the cost risk. Amendments to the regulatory framework – such as to grid charges, to energy and electricity taxes, to CO₂ certificates in the European Emissions Trading Scheme (ETS) and to the German Renewable Energy Act (EEG) – can negatively affect WACKER’s energy costs both directly and indirectly. Germany’s high electricity prices result in competitive disadvantages for WACKER. That is why we advocate introducing an industrial electricity price and are urging policymakers to do so. In addition, we continuously strive to improve our energy efficiency. Our goal is to reduce specific energy consumption by half between 2007 and 2022. When procuring raw materials, we ensure not only favorable pricing, but also price flexibility. To this end, we sometimes conclude contracts with varying durations, with greater freedom for the volume procured, or with regular adjustments of wholesale market prices.

Exchange-Rate Fluctuations

As a rule, WACKER hedges against exchange-rate fluctuations. We hedge about half of our dollar exposure for the following year with a mix of currency-hedging transactions. In determining sensitivity, we simulate a 10-percent devaluation of the US dollar against the euro. Without hedging, such an increase in the euro against the US dollar would have a negative impact on EBITDA of around €43 million.

State-Regulated Incentive and Feed-In Tariff Programs for Renewable Energy Sources

As one of the world’s leading suppliers of hyperpure polycrystalline silicon, we are affected by regulatory changes to incentive and feed-in tariff programs for renewable energy sources. Substantially lower prices for solar modules and cells have greatly increased the competitive advantage of solar energy over fossil fuels and other methods of power generation. The cost of manufacturing photovoltaic products is expected to continue decreasing, which will further reduce dependence on state-regulated incentive and feed-in tariff programs over the next few years. Our assumption is that, in a few years, solar energy will do well even without special incentives, particularly in combination with cost-efficient storage options.

Legal Factors Impacting Our Business

China imposed anti-dumping and anti-subsidy tariffs on polysilicon made in the USA. These tariffs currently affect polysilicon produced at our site in Charleston, Tennessee (USA). Trade relations with China were impaired further when the USA, in turn, introduced safeguard tariffs through a Section 201 proceeding (global safeguard tariffs on solar cells and modules) and through other “Section” proceedings. An amicable settlement to the dispute over solar products may be achievable as part of a comprehensive trade agreement between the USA and China.