The chemical industry has been hit hard by the dual crisis — the oil price fall and the outbreak of COVID-19. While the historic deal pulled off by OPEC+ to slash global oil production by 10% might put an end to the prolonged price war, it would not be enough to offset the havoc created by the pandemic. Concerns persist with an oversupplied crude oil market having stagnant demand from chemical and refined product industries.
Nature of Impact
Leading chemical manufacturers are reducing capital and operational expenditure in the face of the crisis. Manufacturing operations for these companies have been scaled down to 40%-60% capacity due to labor shortages and disruptions in the supply of raw material. Global production of chemicals dropped by 2.4% in February 2020, with the Asia-Pacific posting a production decline of 3.9% in the same month. According to the National Bureau of Statistics of China, the chemical manufacturing in China slumped by around 20% compared to the last year, while profits declined by 66%.
Based on the category, each type of chemical witnessed a decline in production. However, the production of synthetic rubber and specialty chemicals, such as paints and coatings, felt the heat declining at 7.3% and 9.4% respectively. Demand for paints and coating is experiencing a downfall as construction activities are halted and the demand from automotive and other industrial sectors is low. Restrictions on travel have had a direct impact on demand for petrochemicals such as C4 fractions and derivatives, including butadiene, synthetic rubber and acrylonitrile-butadiene-styrene, which are largely used in tires. As people travel less and with countries closing their borders, the demand from the transportation and automotive industries have declined, which has led to an even more substantial reduction in demand for tires, which in turn has a huge impact on the demand for synthetic rubber.
Tackling the Crisis
Despite the downfall in demand and a steep decline in prices, the chemical industry is expected to respond positively and keep operations running, at the same time ensuring labor safety. While demand for products from major industries has decelerated, companies can capitalize on the growing demand for disinfectants, antiseptics and personal protective equipment. Demand for protective packaging is also on the rise due to the increased need for preventing contamination of food, personal care and medical products.
A large number of leading players in the chemical industry have stepped up to produce raw materials for safety products needed for restricting the spread of the virus.
- Companies manufacturing fuel-grade alcohol are now manufacturing neutral alcohol for hand sanitizers and other disinfectants.
- Plastic manufacturers for sports gears are making medical shields.
- Leading players such as Dow, Huntsman and INEOS are ramping up the production of hand sanitizers.
- Honeywell plans to open a new manufacturing facility to produce protective masks, while Solvay partnered with Boeing to produce face shields in response
Given the nature of the chemical industry, manufacturing plants are worker-dense as a majority of operations cannot be done remotely. To address social distancing concerns, companies are implementing staggered shifts and ensuring a safe distance between workers. Chemical companies are increasingly resorting to technology in production areas where human intervention is not imperative. Implementation of automated, data-science augmented, and remote-controlled production not only reduces worker density but also guarantees a more efficient operation with reduced efforts. In addition, companies are proactively adopting advanced digital capabilities that integrate their production operation with supply chain and logistics counterparts to ensure the on-time delivery of their product.