UK distributors report shortages for chemicals going into sanitizers

LONDON (ICIS)–Shortages along chemicals supply chains are mostly apparent for raw materials for hand sanitizers, and some deal terms are shifting from credit to cash only, logistics trade group the Chemical Business Association (CBA) said on Friday.

By agreeing cash-only terms, this could create further challenges down the line, according to the CBA’s CEO Peter Newport.

Europe is only going through the early stages of the supply disruption likely to ensue from the quarantines, border closures, and other measures introduced by lawmakers to slow the spread of coronavirus.

CBA members’ feedback has so far been that chemicals shortages are concentrated largely in the industrial alcohols space.

Demand for hand sanitiser pushed up the price of isopropanol (IPA) in Europe by a four-figure euro/tonne level in some cases last week, reaching historic highs.

Prices are also increasing on industrial ethanol supplies.

“A significant percentage [of member organisations] talked about shortages of alcohol-related products – IPA, ethanol, other industrial alcohols – which are being sucked up to make sanitizers in their various forms,” said Newport.

“But that is really the only significant shortage that our members are aware of at the current time, but it’s evolving so fast.”

Measures have been taken to allow the flow of goods to continue across national borders in spite of the intensified measures, although bottlenecks have been reported at the Polish border.

Some sources mentioned 60-70km tailbacks on Thursday, although those queues had evaporated by Friday, highlighting the level of current volatility.

CASH ONLY
One shift being reported by distributors is of a small number of suppliers shifting to trading on a cash-only basis, according to Newport.

“What we are seeing is some overseas suppliers have moved to payment with order, where they have previously offered credit payment terms which will create cash-flow challenges, and that might lead to supply chain shortage.”

Commenting earlier this week on the impact of the crisis on the creditworthiness of European chemicals players, agency Moody’s noted that companies that had become overly reliant on cheap credit were particularly exposed to current shocks.

The first wave of European industrial shutdowns began this week, with numerous automotive producers announcing plans to idle production facilities in anticipation of slumping demand.

Automotive supply chains are some of the most globalised and tightly meshed, built around just-in-time production, where raw materials and components arrive just before use.

This has reduced the need to carry large inventories and increased the speed and responsiveness of production, but the sensitivity of logistics lines in modern manufacturing has left systems more exposed to disruption than if inventories tended to be larger, Newport noted.

“On an international basis we’ve gone to lean manufacturing and supply chains, there are not necessarily large stock quantities that there might have been even 30 years ago,” he said.

“Disruptions in whatever form, whether the ability to ship across international borders or shortages of drivers, tend to become apparent and potentially acute more quickly.”

The CBA represents the UK chemicals distribution industry, where policymakers have announced £330bn in stimulus funding for businesses hit by the outbreak, and the Bank of England has cut interest rates to 0.1% and expanded quantitative easing levels by £200bn.

STIMULUS: UNCLEAR TERMS  
Despite the measures, the value of UK sterling has fallen to the lowest level in decades against the US dollar, due in part to a coronavirus response that was initially out of step with much of Europe, and stated plans to maintain the current Brexit timetable despite the crisis.

The stimulus measures are welcome news for businesses, Newport said, but the fact that a lot of that cash will take the form of loans, with the terms for repayment unclear at this  stage, may place some firms in a difficult position as they struggle to recover from the economic contraction expected this year.

“It is entirely welcome that the government is taking steps to consider this and try to provide support to business. What is not clear is what loan repayment periods will be, what future interest charges may be. Some businesses are questioning their ability to repay those loans,” said Newport.

“I suspect cash is going to be king at the moment, those that are not highly leveraged will have a different opinion to those who have already extensive borrowing and might need more borrowing to see themselves through.”

European chemicals prices and stocks, as well as crude oil futures, gained ground on Friday after a volatile week.

Front page picture: London’s Oxford Circus underground station, one of the busiest in the UK capital, mostly empty on Friday morning
Source: James Veysey/Shutterstock 

Focus article by Tom Brown