Besides the huge human impact of Covid-19, there is also a lot of discussion about its impact on the global economy. From bottlenecks in logistics and plant shutdowns to downturns in business investments and consumer spending.
With today’s blog article we are trying to evaluate the effect of Covid-19 on the chemical industry in these difficult times.
Not only the epicenters of the epidemic are economically affected.
China, EU and the US, the three regions affected most by Covid-19, are also the biggest chemical manufacturing regions. They account for more than 66% of the world’s chemical sales.[1]
The current crisis forces many factories to drastically reduce or even stop their production lines. And this is happening due to very different reasons: production may be reduced or closed due to a lack of workforce, employees are sick or in quarantine. It may be a company decision to protect the workforce, thus a protective measure. Or, it can happen because production capacities of suppliers have also been reduced and raw materials for production are becoming increasingly scarce in the market.
The reduced rates or stoppages in many facilities will continue to impact the global supply market, also in those countries which might (still) be less affected by the virus. Looking at the past experiences made in China, restrictions linked to the Covid-19 outbreak have caused China’s chemical industry to suffer a 15-25% slump in demand during February.[2]
Most probably, not only chemical production itself will be affected, but restrictions in transportation may aggravate the issue by hindering imports/exports and by limiting the servicing of domestic customers.
In response to this, the German Chemical Industry Association VCI (Verband der Chemischen Industrie) cutted the production forecast for 2020 on early March and stated that they are not expecting the situation to improve in the first half of 2020. [3]
How is the chemical industry coping with the crisis?
The chemical sector is of critical infrastructure, and currently also in the center of all efforts to combat Covid-19. Chemicals are used in countless products that will be needed to support good hygiene and treat those who are infected with Covid-19 in the upcoming weeks and months.
The global chemical industry is stepping up to battle Covid-19 outbreak with a massive focus on the production of key raw materials for hand sanitizers and other disinfectants, as well as for the Covid-19 Test kits.
This leads to the split effect that while in some industry segments the demand has dropped, others even had a boom in requests and sales, such as disinfectants and raw materials, materials to produce packaging, medical supplies, protective equipment, lab supplies and raw materials for the pharmaceutical companies.
How we evaluate the situation
In the graphic below we simplified our expectations for the development of chemical sectors that might be affected, based on a precise research. On the Y-Axis you find the profitability impact, clustered by low, medium and high impact.[4]
We are expecting low impact in essential industries like food, cleaning products (disinfectants), water treatment.
For the plastics and rubber industries we are expecting a mediate impact, since the demand due to masks and gloves and other protection materials increased, but this is unlikely to match the previous industrial demand.
In the category of high impact, you can find industries that have lower priority so they are most likely to stop the manufacturing processes.
On the rise: the demand for polymers, disinfectants, reagents and medical gases will increase
We expect the demand for Polymers, Disinfectants, Reagants and Medical Gases to increase throughout the crisis. The answer to ”why?” you will find in the following paragraphs.
Polymers
- Polypropylene (PP) are used to produce for key personal protective equipment such as face masks, surgical gowns and antibacterial wipes
- Polyethylene (PE) is extensively used for food and equipment packaging
- Polycarbonate (PC) and polymethyl methacrylate (PMMA) for clear protective screens
- Polyvinyl chloride (PVC), used in the medical sector to produce medical tubing, blood and intravenous bags, pipes and vinyl siding and sometimes also for medical glove production.
- Latex/Nitrile Rubber for medical glove production
Disinfectants
- Alcohol for disinfectants: IPA, Ethanol, n-propanol
- Hydrogen peroxide disinfection of medical instruments
- Hypochlorite solutions for disinfectants and surfactants for soaps and other cleaning products
Others
- Raw materials, such as glycerin, gelling agents such as carbomer, preservatives, biocides and plasticizers
Reagents and chemicals used for COVID-19 testing
- Chemicals for RNA extraction: such as Tris, EDTA, chloride salts, TRIzol and raw materials for PBS solution, TE Buffer, and Lysis Buffer and other
- Chemicals virus transportation media, such as: chloride salts, D-Glucose, Gentamicin sulfate, magnesium sulfate and other
Medical gases
- As Covid-19 can affect the respiratory system, the demand for oxygen gas and medicinal gas mixture has increased with the number of patients being treated with supplemental oxygen via masks
Which solutions are the industry proposing?
In times where supply and demand tend to get out of balance, the right matchmaking is an essential success factor for the industry to be able to operate. On CheMondis we have established separate areas on the marketplace that service particularly the need for disinfectants and testing materials (RNA extraction and virus transportation media).
The large need for disinfectants has also affected chemical regulations. To increase the manufacturing and supply of disinfectants on the European market, the European Chemicals Agency (ECHA) is supporting EU/EEA authorities to apply derogations from the normal authorization requirement for biocidal products.
Companies looking to quickly access the market with their disinfectants that contain an already approved active substance can apply for time-limited derogations from the standard product authorization requirements in situations where there is a threat to public health. [5]
In a nutshell
The chemical industry is affected in various ways by Covid-19. Some segments will be severely affected, while others will almost boom. In order to ensure the health of humanity, the entire chemical industry is working at full speed to combat supply bottlenecks and difficulties in the value chain.
Now it is up to you
What are your first experiences with the current crises? Do you have the same experience on the future like we have? Leave a comment below and let us know.
Thanks for taking the time to read the CheMondis Blog.
[1] The European Chemical Industry. (2020). Facts & Figures of the European chemical industry.
[2] Independent Commodity Intelligence Services. (2020). Petrochemicals to recover slowly after the coronavirus outbreak.
[3] Reuters. (2020): Germany’s chemical association cuts production forecast due to coronavirus.
[4] Roland Berger. (2020): Latest update of our corona economic impact series.
[5] ECHA. (2020). Speeding up the supply of disinfectants.
