Chemical makers are responding quickly to mitigate the impact of the coronavirus disease 2019 (COVID-19) crisis. Industry is placing an emphasis on safe operations and ramping up supply of essential ingredients and materials needed to address the crisis, while taking steps to preserve liquidity.
The federal government has identified chemical manufacturing as critical to human health and safety as the country grapples with COVID-19 and exempted the industry and its supply chain from mandated business closures. The Department of Homeland Security (DHS), which issued the list of 16 critical sectors, also urged state and local communities to maintain the chemical industry’s continuity of operations when considering restrictions.
While overall demand will slump in a recessionary environment, the impact will not be uniform. Durables, particularly those tied to transport and automotive, will suffer severe temporary demand declines. Sectors tied to healthcare, hygiene, and medical, however, will be seeing much stronger demand. Packaging materials will also see strength on e-commerce and retail food sales.
“There’s going to be record demand in some sectors and we’re seeing it,” Ecolab chairman and CEO Douglas Baker said in an investor call last week. “We’re also seeing record demand destruction in others, but certainly there is no way this, in my mind, is going to be the end of days for either mankind or for Ecolab.”
Ecolab noted that orders for hand sanitizers were 15 times normal levels, hand care products were up five times, and demand for hard surface sanitizers were up 3 times. Ecolab said it was working to fully meet the increased demand with a priority for existing customers.
Ecolab has taken steps to preserve cash, including a planned 50% cut to capital expenditures as well as a hiring freeze and other spending controls.
“We will navigate through this and be prepared for the other side,” Baker said. “This will ultimately pass and new normal will emerge. And when that new normal emerges, it’s hard to imagine an environment where cleaner, safer, healthier positioning won’t be even more relevant. And hygiene, antimicrobial, and [environmental, social, and governance] ESG knowhow will matter even more.”
Companies have required or encouraged administrative staff to work from home to the extent possible. On the manufacturing side companies are putting in place pandemic protocols to maintain safe plant operations.
“We also understand that we run world-class manufacturing organizations—organizations where health and safety is especially paramount, and where working from home may not be possible,” Dow CEO Jim Fitterling said in a letter released by the company . “As a result, we’re actively managing the situation—site by site and region by region—to ensure we are operating in the safest and most reliable manner possible.”
Dow is repurposing an existing facility to produce hand sanitizer in the US, and has already shipped product from a plant in Germany. DuPont Safety is working to increase production capacity of protective garments and says its nine Tyvek plants are working overtime. 3M has doubled its global output of N95 respirators to nearly 100 million per month. Honeywell is also expanding production of N95 masks in Smithfield, Rhode Island, where it will add 500 jobs. In Europe, BASF, Dow, Ineos, Huntsman, and Syngenta have converted assets to make hand sanitizer and other essential materials.
GDP outlook dims
IHS Markit said it expects US GDP to fall by 13.0% sequentially in the second quarter, and by 1.7% year-on-year (YOY) for the full-year 2020. Global GDP is forecast to fall by 0.2% this year, with most countries falling into recession. US economic growth is expected to pick up again in August. A “firm rebound” will not take hold until the fourth quarter, IHS Markit says. US GDP is expected to grow by 3.8% in 2021.
The contraction is expected to be driven by extremely sharp declines in the service sector. Consumer spending on transportation, entertainment, gambling, travel and restaurants is expected to fall by 40–90% with no recovery until August.
However, industrial sectors will see contractions, as well. Automotive production has ground to a halt, and IHS Markit expects shutdowns in the industry to last into April. Brent crude is expected to plunge to nearly $11/barrel in the second quarter before rebounding, depressing investment in the energy sector.
Overall, IHS Markit expects industrial production to begin contracting in the first quarter, and remain in negative territory for the rest of the year. Industrial production is expected to bottom out in the third-quarter, with a contraction of 8.3%.
Source: Chemical Week
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