Impact Of Covid 19 On Chemicals Industry

Prasad has been associated with Aranca for over a decade now, prior to which he has worked with InterSTrat Consultants and Forbes & Company.

Since its outbreak in China toward the end of 2019, the coronavirus pandemic has evolved into one of the most significant challenges the global economy has ever faced. With 4.5 million infections and 300,000+ casualties so far, it shows no signs of abating anytime soon. Lockdowns and social distancing remain the only ways to control the spread, and these measures have caused widespread disruption on the demand and supply fronts. Many industries are facing a downturn, and as the quarters roll by, the impact is only becoming more visible.

Preliminary trends indicate impact on the chemical industry is relatively low and it continues to be resilient. The Chemical Activity Barometer (CAB), a leading economic indicator released by the American Chemistry Council, fell 5.5 percent in April 2020, declining for the third straight month. A continuous decline of more than three percent for three consecutive months is generally believed to signal recession, and this drop in April 2020 affirms the fears. That chemical production had begun to decrease was, however, evident much earlier, as year-on-year growth decelerated 1.5−3% in North America, Europe, and Asia-Pacific in January and February 2020.

Supply chains of specialty chemicals are intertwined, and China continues to be the most crucial cog in the wheel.The disruption in supply chains globally due to the coronavirus outbreak has prompted specialty chemical manufacturers to revisit their manufacturing strategies and shift production to low-risk geographies.

Supply chains of specialty chemicals are intertwined, and China continues to be the most crucial cog in the wheel

In the wake of these unforeseen changes, specialty chemical manufacturing companies have shelved their expansion plans, which has negatively impacted the supply landscape.Further, the specialty chemicals segment had already taken a hit due to regulatory crackdown in markets such as China. The pandemic has exacerbated the problems, which would impede growth in production in this segment through 2020.

On the flip side, the decline is expected to be offset by the relatively low impact on basic chemicals. At the beginning of the outbreak, petrochemicals production in China did suffer. However, a quick resumption in industrial activity meant that production was never significantly affected for long; as a result, impact on supply was negligible. Cracker expansions continue to be on track, implying basic chemicals segment remains comparatively immune to supply-side disruptions.

On the agri-chemicals front, the impact is still vague. Leading agri-chemical manufacturers depend heavily on the supply of ingredients from Asian markets such as China and India. In early 2020, while the pandemic was still in the early stages, much of the agri-chemicals required to meet demand for the 2020 crop season in western markets had already been formulated and shipped. Hence, the market did not face any supply disruption in Q1 2020.However, the inventory is now depleting rapidly, and with the global logistics networks impaired, western manufacturers are beginning to worry. Taking advantage of the phased relaxation of restrictions on trade and lockdowns, these manufacturers are slowly building inventory for the next phase of demand. However, if the pandemic is not contained in Q2, the agri-chemicals segment is likely to start feeling the heat in H2 2020.

In summary, the slowdown in some segments has been offset by an uptick in others; this has ensured balance in the overall industry, helping it fare better than most others. As a leading indicator of industrial activity, the chemical industry is being closely watched for any indication of revival. Given its robust supply side, the industry is set to be the first to benefit from the rebound, whenever it occurs.