The COVID-19 pandemic has already affected the chemical supply chain, with restrictions in industrial production and weak demand leading to production cuts and trade vulnerability. Logistical problems, staffing shortages and rising inventories are contributing to the overall challenges in the chemical industry. All these factors have changed the supply-demand dynamics and consequently, the commodity prices of major chemicals.
While most petrochemicals experienced weak demand, lengthy supply and low prices in Q1 2020, certain products, such as R-PET and Isopropyl Alcohol (IPA), gained prime importance during this unprecedented crisis. Amongst these products, IPA is the key ingredient to hand sanitisers and other disinfectants for protection against the virus, which created an enormous global demand for the chemical, leading to supply shortages and global price increases.
IPA price movement was gradual in the Americas until mid-March but suddenly witnessed a sharp price increase due to a quick jump in COVID-19 cases across the USA, which created strong demand and supply shortage of IPA to manufacture hand sanitizers. According to several market participants, the U.S. did not anticipate such a strong demand for IPA in the domestic market and had even increased its exports to Europe when demand grew there early in 2020. However, the supply of IPA became a challenge when strong demand appeared from both, the domestic and export markets towards the end of March. The U.S. is now reliant on imports from Asia, particularly South Korea and Taiwan. At the same time, exports to Europe declined due to the rise in prices domestically following strong demand with the exponential rise of COVID-19 cases across the USA. IPA prices have almost doubled in the U.S. between March and April.
The demand for IPA to produce hand sanitisers and other products remained firm since early Q1, especially during February and March, due to the rise in COVID-19 cases in major European regions such as Italy, Spain, Germany and the UK. As ethanol and IPA are major raw materials of disinfectant products and hand sanitisers, the shortage of ethanol augmented the demand for IPA in Europe. This led to Europe being heavily reliant on imports of IPA, which almost doubled IPA prices by April 2020.
Asia’s IPA prices soared by more than 90% from January — a historic 9-year high in prices — with persistent enquiries to secure bulk material coming in from the U.S., Europe, India. From the supply standpoint almost all Asian producers, including China, have ramped up production for both propylene-based and acetone-based IPA grades in order to meet the global demand to produce disinfectants.
The Outlook for 2020
Global regulations have eased restrictions to combat the shortage of IPA and other alcohols during the ongoing crisis. This permits chemical companies to shift production at several facilities around the world. The U.S. Environmental Protection Agency recently made an interim provision that allows manufacturers to source raw materials for hand sanitisers from any supplier without obtaining approval from the agency first to assure continued supply of disinfectants. Many chemical companies have stepped up to provide either finished products or the raw materials required to produce it. For example, Dow Chemical has expanded sanitiser production at five of its facilities across the world in the USA, South America and Europe. Each plant is expected to produce about 200 tonnes of sanitiser every week. Similarly, BASF has allocated IPA to produce hand sanitisers. Moreover, Ineos recently announced plans to construct a plant in the UK and produce about 1 million disinfectants every month. Other chemical companies are likely to procure IPA in bulk to produce disinfectants and supply it free of charge to medical facilities.
There has been a massive shift in global production to manufacture disinfectants, although IPA is expected to remain in short supply in the short-term due to unabated demand for sanitisers and disinfectants amid the COVID-19 pandemic. Besides, IPA prices are anticipated to increase further unless the COVID-19 spread is curbed globally.