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.
Economic Factors Impacting Our Business
The main economic factors influencing WACKER’s business remained unchanged in many areas.
Raw-Material and Energy Costs
As a chemical company, we belong to an energy-intensive industry and require diverse raw materials to manufacture our products. Consequently, increases in raw-material and energy costs have a significant effect on our cost structure. Although energy and raw material prices fell in 2023, they remain markedly higher than in 2018 and 2019. WACKER strives to keep costs at a competitive level. It does so by using multiple suppliers for most of its key raw materials and structuring its supply contracts so as to grant itself sufficient flexibility as regards volumes, and by adopting suitable pricing mechanisms to ensure competitive procurement prices. However, a problem is posed by the fact that some prices in Europe are significantly higher than in other regions due to regulatory requirements. Contributory factors include not only the CO2 emissions trading system (ETS), but also energy taxes, anti-dumping import duties and the insufficient expansion of renewable energy, coupled with politically forced shutdowns of conventional power plants and with sluggish grid growth. Although the high electricity and natural gas prices paid at European industrial sites due to Russia’s attack on Ukraine decreased in 2023, they are still markedly higher than in other regions. WACKER has strongly advocated the introduction of an industrial electricity price or, alternatively, a green transformation electricity price at internationally competitive terms. While the German government’s electricity-price package published in November 2023 is, in WACKER’s view, a step in the right direction, it is largely based on previous regulations about electricity-price compensation and electricity-tax relief.
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 €46 million. There are still hedging transactions in Japanese yen (JPY) that were concluded back in 2021 and 2022. In 2023, no new JPY transactions were concluded.
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.
