The Covid-19 situation has brought about unprecedented changes to the chemical industry.
The chemical industry has always had a key role in the production of daily necessities such as plastic, fertilizers, medicines, packaging products and with the severe disruption caused by Covid-19, these industries were hit badly, causing a chain effect which disrupted usual practices.
1. Chain Effect of Various Industries
Covid-19 affected consumer's spending abilities and this caused a drop in demand for key sectors such as automotive, speciality chemicals and consumer products. This indirectly caused a chain-effect, implicating the chemical industry.
Paints and coatings industry faced the brunt of the force due to the decline in construction, automotive and industrial sectors. Even petrochemical industries were not spared, with the decline in the aviation sector due to the travel bans. This impacted the demand for tires and synthetic rubber as well.
However, in times of crisis, the pharmaceutical, food additives and disinfectants industries are hitting their all-time highs. Many companies pivoted their factories to feed the demand for face masks and critical chemicals, in an attempt to help their employees keep their jobs and to be in the green.
2. Chemical Industry Scaling Down
The chemical industry is one which is worker-dense, and the implementation of measures to reduce human contacts such as staggered shifts and safe distancing would prove to be a challenge to keep the manufacturing process as efficient as before. This proves to be a good time to implement automated technology in the production line.
Operational expenditure was also scaled down by 40-60% in manufacturing cost due to labour shortages and disruption in supplies of raw materials. The global production of chemicals dropped 2.4% in Feb 2020, and 3.9% in Asia-pacific, affecting the profits.
3. Deglobalisation of Supply Chains
Many companies pivoted to manufacture face masks and critical chemicals instead. Companies that manufacture fuel-grade alcohols pivoted their direction, making neutral alcohol for hand sanitizers and other disinfectants.
Plastic manufacturers that once made sports gears are now making medical shields. They are distributing these locally, direct to the consumers, which destabilizes the global supply chains.
4. Stock Market Shifts
Stocks for the chemical industry would also be shuffled, where the larger companies with a larger pool of resources and money can continue to expand and cushion the blow, as compared to the financially weaker and highly leveraged companies.
BASF, for one, showed no signs of slowing down, launched a 10 billion dollar project called 'Smart Verbund' in Zhanjiang, China, in an attempt to ramp up its investment in the Asia Pacific region. This project would be the 3rd largest BASF site after Germany and Belgium.
Exxon Mobil, too, constructed a 10 billion petrochemical complex in Huizhou, Guangdong, with the goal of producing 1.6 million tonnes of ethylene per year.
5. Industry Restructuring
This crisis presents innovators with a chance to restructure and reshape the industry. With companies getting closer to end-users, it changes the deals set by chemical companies by avoiding the commoditization trap and price on value, instead of per ton.
In my internship company, MahaChem, we're gearing to create an online platform called Chem-On, with the ambition for it to emulate business models like Amazon and Alibaba in the chemical industry.
All in all, amidst this crisis, all is not lost.
Sure, some industries faced a steeper decline than others, but in times of crisis comes opportunity, which many companies are still capitalizing on. One thing for sure, the chemical industry might be down but not out.
This article was written by Alvin Wong, Corporate Excellence Associate at Maha Chemicals. View his post on LinkedIn here.