Global economy 'suspends', chemical industry may face the worst demand crisis

The data shows that the European economy is collapsing, that is, the global economy is going into a deep recession, and some chemical markets have suffered severe demand shocks. The question is, how deep will the recession last and how long will it last?

The Eurozone March Purchasing Managers Index (PMI) released by IHS Markit last week shows that the region ’s economy is shrinking rapidly. The Eurozone PMI index has fallen sharply from 51.6 in February to 31.4 points in March, setting a record low. The index measures services and manufacturing. Any number below 50 indicates that the economy is contracting.

Economically press the "Pause button"

As more and more cities and countries enter the blockade mode, most economic activities are being severely restricted or even stalled.

The European automotive industry is already at a standstill. As other countries take similar measures, they may further inhibit economic activity. In the coming months, PMI may decline further, especially in countries that have not yet faced strict restrictions. The disruption of the manufacturing supply chain has made the situation worse.

While some factories were closed due to a sharp drop in downstream demand, others were facing the dilemma of understaffing. In the chemical industry, An Xunsi reported this week that Arkema has stopped the production of its acrylic plant in Carlin, France, mainly because some key operators of the plant could not be reached due to the requirements of coronavirus control Factory work.

European economic decline will hit the highest in history

According to data from Oxford Economics, gross domestic product (GDP) in the euro zone will fall by 4% in the second quarter of this year, the largest decline in history.

The agency predicts that the economy of the euro zone will contract by 2.2% throughout 2020. The basis is that with the lifting of prevention and control measures and the role of monetary and fiscal stimulus, the euro zone economy will rebound relatively quickly in the second half of the year.

India and the United States escalate prevention and control measures

Following China, South Korea and Europe, other countries in Asia and the United States are also gradually adopting a blockade model, with dire consequences for the global economy.

India entered a 21-day national blockade last week, and ports and petrochemical plants have been forced to close.

The United States, which has been lagging behind Europe in the implementation of the blockade, is now implementing restrictions state by state, which has an increasing impact on economic activity. Due to government restrictions, labor shortages or logistics chaos, most of the U.S. auto industry has ceased production and construction projects have been delayed or cancelled.

The global economy will decline in depth

The S & P Global Rating Agency predicted on March 24 that global economic growth caused by coronavirus will be "heavyly hit". The US GDP decline will exceed 12% in the second quarter, and a similar decline will occur in Europe. The agency expects Brazil, India, and Mexico to experience double-digit GDP declines. These countries are the last countries affected by coronavirus.

On March 25 alone, S & P issued 49 press releases, lowering or placing companies in many industries on the credit watch list. The list in the chemical industry includes BASF, Atotech, Pfizer, Nordic Chemical and Western Petroleum.

The Oxford Economics Institute believes that its basic scenario forecast has considerable downside risks for three reasons: first, the current epidemic will continue for a longer period of time, and more countries may introduce more restrictions; second, policymakers will not be able to limit market panic. Risk; the third is the possible long-term impact on company and individual behavior.

In the downside scenario, there may be a more severe and lasting recession, more countries will suffer more severe and lasting effects, and the spillover effect of financial markets will be greater than the current baseline level. Under the downward scenario, the global economy will contract by 1.3% in 2020.

China's hope for recovery

China is the first country in the world to enter the blockade state. As the nationwide restrictions are gradually lifted, China's recovery is expected to repeat itself in other countries. From March 25th, Hubei Province has abolished all domestic travel restrictions except Wuhan.

According to An Xunsi's survey on the latest situation of China's petrochemical industry, the situation in China's petrochemical industry was mixed. Between March 20 and 26, 24 factories were reopened, but 21 were closed. An Xunsi reports that stocks of xylene and toluene in eastern ports in China have declined, but stocks of styrene monomer have increased.

Critical demand has dropped significantly, chemical companies face difficult choices

John Richardson, senior consultant of Anxun Asia, and Paul Hodges, chairman of the world-renowned consulting company International eChem, said that the coronavirus epidemic means that the chemical industry may face a financial crisis from 2008 to 2009 At the time of the more serious demand shock, the operating rate of the chemical industry fell to 46% at that time.

The two analysts said that global demand for key end industries for chemical products such as automobiles, construction and electronics has fallen sharply, making chemical companies face difficult choices when maintaining business. Hodges said: "This may be the largest decline in demand since the end of World War II, when GDP fell by 25%. A large recession like this may take 10 years to recover. The 2008-2009 global financial crisis is today A rehearsal—In December 2008, the global chemical industry ’s capacity utilization rate dropped to 46%. From a financial perspective, chemical companies must focus on cash and debt to survive the storm and ensure that both customers and suppliers Solvency, while controlling costs. "Richardson ’s latest estimates published on his blog show that compared with the pre-crisis forecast, in the most optimistic case, from 2020-2022, global ethylene demand may be reduced by 30 million tons In the worst case, ethylene demand will be reduced by 71 million tons.