Concerns of chemical industries with respect to Covid-19

Just as supply chains are being disrupted by outbreaks in key regions, demand may fall due to uncertainty in the global economy and capital markets.

There’s no one-size-fits-all approach to the current environment — and it’s certainly not business as usual. Most companies already have business continuity plans, but those may not address the fast-moving and unknown variables of an outbreak like COVID-19.

The industry could potentially be hit hard by the COVID-19 outbreak on numerous fronts: lowered demand and productivity, operational and supply chain disruptions, potentially tightening credit markets and the health of their workforce.

The industry may be especially vulnerable given that the bulk of its production workforce is in on-site jobs that cannot be done remotely. Additionally, given the nature of the industry, companies may need to consider how to create social distancing in workplaces that are often worker-dense.

On top of this, many companies should prepare for major global supply chain and other distribution disruptions. They should also likely expect that supply chain partners may experience their own challenges and may not be able to fulfill orders on time — or at all — during the crisis.

Finally, expect slackening demand for products resulting from some impacted industries, including automotive and industrial products. Yet, we could simultaneously see a continued demand from other end-users, such as producers of personal health and household products.

Chemicals companies, like many other manufacturers, are exposed on multiple fronts to the disruption wrought by the COVID-19 outbreak. In the immediate future, they may grapple with keeping their workforce and their families safe, while keeping operations in place as much as possible.

Commodity chemicals companies may have to cope with feedstock price volatility, supply chain and logistics challenges, and unpredictable customer demand. And the industry may well need to find alternatives to the sector's reliance on inputs from China-based suppliers.

In the medium term, demand for products ranging from automobiles to some consumer products could likely decrease. Small pockets of the industry may benefit — such as those that produce chemicals included in sanitation products or certain plastics used in medical devices — but the vast majority of the industry may likely be negatively impacted due to significant reliance on Asia for supply, as well as lower global demand in end-use markets. Many in the industry may put into place measures to ride out this crisis by helping contain the effect of the virus on their workforce, temporarily closing facilities, maintaining cash liquidity and shoring up operations on numerous fronts.

Looking ahead to containment of the virus and an eventual economic recovery, chemicals companies should consider what the industry recovery may look like, and plan for what steps they can take now to position themselves as well as possible in a post-COVID-19 world.