CHEMICALS

Due to its close ties with the variations of countries’ GDP, chemicals is usually considered as a cyclical business. However, it appears to be less the case nowadays because many chemical products are used in all stages of global supply chains, especially in downstream chemical subsectors such as hygiene products or specialties. Besides, the latest data available on the actual impact of Covid-19 on chemical output show that the sector does not seem to be as hard-hit as some other manufacturing sectors - like machinery or metals – because of its role as an inescapable industry in global supply chains. However, if Eurozone chemicals still posted little positive output growth in March, this has no longer been the case for two months.

Some chemical segments have performed better than others. Consumer chemicals have cashed in on a stronger demand for soaps, detergents and sanitizers, in spite of headwinds for high-value added cosmetics considered by some as luxury goods. Consumer chemicals as much as specialty chemicals usually succeed in keeping sound margin levels because of their pricing power that more than makes up for the downward adjustment of volumes. However, it should not be that easy this year for a few specialty chemicals like paints, inks and coatings as their production has been curtailed by the hardships of the automotive sector, a key customer market, which led to some car factory shutdowns. 

Petrochemicals and plastics cannot build upon the gloom in the upstream manufacturing sector. Besides, the drop in global oil prices should hardly help shore up margins of basic chemicals producers that are reliant on oil-derived naphtha as a feedstock. It should instead spur destocking by chemical-consuming sectors as they anticipate lower input prices. Plastics made out of commodities such as ethylene strongly depends on the construction sector whose outlook appears to be on a downtrend across most of mature countries. Agrochemicals keeps on struggling because it has to cope with the farming crisis battered by too low food commodity prices that prevent farmers from buying further crop protection products. 

Estimated at USD3800bn in 2019, global chemical sales are forecast to drop by -9% in 2020 against the backdrop of both the resumption of the U.S.-China trade dispute and the severe blow to world growth due to the Covid-19 pandemic. Regardless of any turnaround that may occur in the second half of the year due to the implementation of massive economic stimulus packages, it won’t be enough to make up for the lag in the first half of the year. The expectation of a growth recovery for the sector at around +6% next year might, however, alleviate the pain in the months ahead.