By John Richardson
HERE IS your print-out-and-keep 10-point guide, summarising the key themes I’ve covered over the last two weeks with important updates. I hope this helps your petrochemicals business in its planning process.
Before we begin, I am afraid to say that we have probably lost a year’s worth of demand growth.Growth likely to be negative across most petrochemicals. No meaningful recovery in markets seems likely until the end of 2020 as things stand today (let’s hope they change). No recovery until the end of 2020 should therefore be your base case for planning purposes.
Please contact me at email@example.com on how ICIS can help you manage this crisis with our constantly updated data and analysis. Events will continue to move quickly and so we are here to help:
- The great news, and I was sceptical about this until a few days ago, is that China appears to be on top of the crisis thanks to huge and highly coordinated government efforts. Why I was sceptical was because of several changes in the methodology of assessing the number of cases. But from speaking to people who sell to China, they are seeing a big recovery in economic activity. This article, covering the recent World Health Organisation visit to China, seems to further confirm China’s success.
- There is one major caveat here, though, and that is whether there will be a secondary wave of infections when China fully gets back to work. We need to keep a watch on this.
- Even with the Chinese economic stimulus that’s going to kick in once everyone is fully back to work, lost demand is lost demand. The Lunar New Year was a major consumption season so think of all the bus, train and car journeys and all the buying of gifts which didn’t take place during that period. This lost demand cannot be replaced later in the year.
- It will also take a good while for supply chains to come back to normal even in the best of possible outcomes. Chinese ports are clogged-up with goods that were made before the outbreak that still need to be shipped. This article from the New York Times is worth parsing in detail.
- As the virus has gone global, no other country in the world can replicate what China has done because of its unique levels of control. So, we need to study the disruptions that have taken place in China and consider how they might play out globally
- Whereas economic stimulus will work in China once most people are back to work, provided there are no secondary outbreaks, it won’t work in the West because travel restrictions, factory and school closures etc. have only just started. You cannot stimulate economic activity that isn’t taking place.
- In May 2003, the Q2 company results came out and the results were grim. Even though by then SARS was being brought under control, the negative effect on stock market sentiment and so economic activity was big. We can expect the same in May this year when the Q2 results come out, but on a bigger scale because this is a bigger event than SARS, for reasons I’ve mentioned in earlier posts.
- There will be several waves of disappointing financial results if this crisis isn’t over until the end of the year, whereas in the case of SARS it was only one wave of bad results.
- One of the major global problems will relate to logistics. Think of what’s happened because of events only in China. Containers are stuck in the wrong ports and there is a global lack of backhaul cargoes. Now consider the implications if most of the rest of the world suffers the same logistics problems. There could be a major impact on trade flows of petrochemical feedstocks, petrochemical products and customers’ products all the way down to finished goods. Petrochemicals markets may become much more regional.
- The inevitable global recession may morph into a financial crisis. Those who read the blog will know I’ve been warning about this for several years. Here is an FT article that gives some important context.