While no one can be certain what affect 6-weeks or more of lockdown for the population will have on the global economy, these unprecedented events will have an astounding impact on business.
The World Trade Organisation is forecasting a drop in international trade of between 13% and 32%. While a recent BBC report stating that, “The more pessimistic case would amount to a decline in global trade similar to what happened in the great depression 90 years ago but in shorter period of time.” Quoting the WTO's director general Roberto Azevedo describing the figures as, “ugly. …There is no getting round that.”
But how is the chemical industry reacting to the economic lockdown in different regions?
How is the COVID-19 lockdown impacting China’s chemical industry?
All eyes have turned to China. Not only as the first country to experience thousands of deaths and economic lockdown, but also as a world leader in the chemical industry.
Contributing more than 35% of global chemical sales in 2018 and with the world’s second largest chemical product demand, how China responds to COVID-19 will be a key indicator of how a post-pandemic chemical industry will look.
Economic data gleaned from Beijing supports WTO fears of recession, with the industry journal ICIS reporting that, “China’s huge economy posted its first contraction on record in the March quarter as the draconian epidemic-containment measures adopted virtually halted all production in the first two months of 2020.” With the economy suffering, “… an annualised contraction of 6.8% in January-March 2020, the first since 1991, when the country began tracking quarterly GDP.”
Hubei province, where Wuhan is located, is the fifth largest chemical producer in China. It accounts for 3.5% of national chemical output and includes polyester and textile chemicals at its core.
Naturally, businesses with chemical plants there will be some of the hardest hit. Companies such as chlorine producer Shuanghuan Chemical, which has half of its revenues from the region, has already warned that Q1 earnings will be ‘severely impacted’ by coronavirus.
Some see data like this as only a blip and are more phlegmatic about the long-term result of the pandemic. For example, Liao Ying, a senior executive at Xianglong Logistics, a Chinese chemical storage and transportation provider, believes that the chemical industry’s situation is manageable, adding that, “… transporting raw materials to chemical makers should not be a big problem.”
However, while the lockdowns may be seen as just a temporary problem, the bigger problem, according to a report by the Beijing-based investment bank CSC Financial, is a drop in chemical product value. With the industry journal CE&N quoting the report as saying, “The most likely scenario is declining prices caused by weakened demand.”
Many believe that it is this fall in demand that will have the largest impact on the chemical industry.
Meanwhile, comparisons being made with how the Chinese chemical industry handled the SARS outbreak in 2003 fail to acknowledge how much things have changed in 17 years.
Today, the Chinese chemical industry is 12 times larger, but more significantly, it is in a weaker position. As the CE&N report explains, “… in 2003, China’s chemical industry was expanding robustly … and demand wasn’t severely impacted, even during the epidemic’s most serious period in the second quarter. In contrast, the sector experienced a year and a half of declining prosperity before the coronavirus outbreak, so companies have less cushion if the epidemic doesn’t quickly ease.”
This puts the Chinese chemical industry in a precarious position to face the knock-on effects of coronavirus. But how are other countries faring?
How is the COVID-19 lockdown impacting Pakistan’s chemical industry?
Further west, in Pakistan, the lockdown is causing panic amongst chemical producers who are largely banned from operating their facilities.
The response from the Pakistan Chemical Manufacturers Association (PCMA) Chairman, Abrar Ahmad, has been to plead for chemical industry exception. The International News reporting of his open letter urging, “… the chief ministers of Punjab and Sindh to issue early orders for exemption of chemical manufacturing industry from Section 144 [the lockdown order] to avoid disruption in supply chain of all essential industries including the export-led industries, which are threatened to be handicapped due to unavailability of the input chemicals.”
Specifically highlighting that the chemical industry adds $12 billion GDP, providing, “… 400,000 jobs with an income multiplier of 4.2 and with job multiplies of 7.8.”
Perhaps political leaders will need to decide what is their priority; a healthier population with minimum fatalities, or a focus on reopening businesses to boost the economy.
Most likely, the answer lies somewhere between the two extremes, but which side of the line the chemical industry falls will vary from place to place.
To learn more about how coronavirus is impacting the chemical industry, read: How Coronavirus is Impacting Chemical Production Part 2.
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