Topic Page - Coronavirus and oil price war

Author: Will Beacham

2020/01/30

New figures suggest Europe's economy is plunging into a deep recession as coronavirus restrictions spread. Economists downgrade global GDP forecasts for 2020.

As chemical markets adjust to these conditions,  Europe fuel ethanol prices plummet to record lows this week on lower consumption, as the industrial and beverage ethanol markets continued to tighten for use in hand santitizers.

In Turkey polyethylene (PE) markets, prices for all grades have fallen, as demand falls away and some suppliers have cut prices in an attempt to shift their product. Rapidly closing borders and the spread of country-wide lockdowns has spooked some sellers.

Meanwhile Europe's most important distribution conference of the year, the Fecc Congress, has been cancelled because of the coronavirus pandemic.

On this topic page we analyse the impact of coronavirus and the oil price collapse on chemical markets and bring together the latest news reported by ICIS.

Scroll down to see the latest interactive graphics, podcasts and videos. 

Click here to register for a series of daily webinars to help you navigate these challenging times.

LATEST HEADLINES

US March propylene contracts settle down 4 cents/lb
By Michael Sims 2020/03/27 HOUSTON (ICIS)--US March propylene contracts settled lower by 4 cents/lb for the majority of the market amid falling feedstock prices, ample supply and muted demand.

The settlement puts March polymer-grade propylene (PGP) contracts at 28.0 cents/lb ($617/tonne) DEL (delivered) and chemical-grade propylene (CGP) at 26.5 cents/lb DEL.

US chem shares, oil fall despite passage of $2tr stimulus bill
By Al Greenwood 2020/03/27 HOUSTON (ICIS)--Oil prices plummeted and US-listed chemical stocks fell on Friday despite the US Congress passing a $2tr stimulus bill intended to offset some of the economic damage caused by the coronavirus (Covid-19).

INSIGHT: EU fuel ethanol plummets but sanitizer market taking increasing share
By Clare Pennington 2020/03/27 LONDON (ICIS)--The Europe fuel ethanol price range plummeted €77-125/cbm (cubic metre) FOB (free on board) Rotterdam to record lows this week on lower consumption, as the industrial and beverage ethanol markets continued to tighten and the fuel production pool is reallocated to traditional industrial markets.

PRICES
The fuel price range settled at €359-432/cbm FOB Rotterdam, with the lower end of the range theoretically eliminating margins for some producers.

Future prices stand at around €380/cbm FOB for June and rise to over €400/cbm FOB Rotterdam for the thirs quareter, as depressed physical prices leave the market with a weak contango in the end of week prices.

Europe economic collapse adds to global chemicals woes
By Will Beacham 2020/03/27 BARCELONA (ICIS)--New figures which show Europe’s economy is collapsing confirm fears that the world is heading for a deep recession as some chemicals markets have already suffered severe demand shocks.

The question is – how deep and how long will the recession be?

The eurozone's March PMIs published this week by IHS Markit, measuring both services and manufacturing industries, suggested the region’s economy is contracting quickly, with the headline figure plunging to an unprecedented 31.4 points in March, down from 51.6 points in February.

Turkey PE and PP prices slashed, demand slumps as coronavirus spreads

By Ben Lake 27-Mar-20 13:59 LONDON (ICIS)--Liquidity has reduced in the Turkish polyethylene (PE) and polypropylene (PP) market due to the effects of the coronavirus pandemic, but deals have been completed following aggressive reductions by some sellers.

Prices for all grades have fallen, as demand falls away and some suppliers have cut prices in an attempt to shift their product. Rapidly closing borders and the spread of country-wide lockdowns has spooked some sellers.

Sentiment is poor as the government begins to enforce measures to prevent the spread of the virus. Although the government is keen to avoid an official lockdown, many citizens are taking matters into their own hands and isolating as much as possible.

Fecc distributors congress cancelled amid coronavirus
By Will Beacham 2020/03/27 BARCELONA (ICIS)--Europe's most important distribution conference of the year, the Fecc Congress, has been cancelled because of the coronavirus pandemic.

The event - scheduled to take place 27-29 May in Milan, Italy - is the annual conference organised by the European Association of Chemical Distributors.

In a statement the organisers said: "Under the current, unprecedented circumstances, our top priority lies in ensuring the health of everyone involved in the event, and the developments of the coming months seem rather unpredictable."

China petrochemicals to take time to heal as pandemic pummels global demand
By Pearl Bantillo 27-Mar-20 17:47 SINGAPORE (ICIS)--A quick recovery for China’s petrochemical industry is out of the question as it is emerging from a prolonged lockdown to contain a deadly coronavirus, while the rest of the world has just started the process of shutting themselves in to stem the tide of infection.

Most of China’s end-products are meant for exports, demand for which could continue to dissipate given a strong likelihood now of a global economic recession.

Asia petchem shares rise after G20 pledge to inject trillions into global economy
By Nurluqman Suratman 27-Mar-20 11:47 SINGAPORE (ICIS)--Asian petrochemical shares and crude oil futures rose on Friday after G20 leaders overnight pledged to inject $5 trillion into the global economy to cushion the slump caused by the coronavirus pandemic.

At 02:30 GMT, Japan's Mitsubishi Chemical was up nearly 2%, South Korean producer LG Chem was 1% higher and Malaysia's PETRONAS Chemicals Group was up by 2.58%.

Indian PA trade halted as country enters quarantine; outlook grim
Ai Teng Lim 27-Mar-20 10:32 SINGAPORE (ICIS)--India’s phthalic anhydride (PA) import discussions and domestic trade grinded to a halt this week as a 21-day quarantine was imposed from 25 March to break the coronavirus spread.

India’s government has warned the lockdown may be extended further if the virus situation warrants so, which will keep PA market in suspension as end user demand has come to a stand still.

US chem shares jump for third day on $2tr stimulus package
By Al Greenwood 2020/03/26 HOUSTON (ICIS)--US-listed shares of chemical companies rose for the third day in a row on Thursday as the nation continues to make progress towards passing a $2tr stimulus package.

The package is meant to offset the economic downturn caused by the coronavirus (Covid-19).

3bn gallons of fuel ethanol idled, some plants switch to industrial production - RFA
By Alex Snodgrass 2020/03/26 HOUSTON (ICIS)-- The Renewable Fuels Association (RFA) predicts that 3bn gal of ethanol capacity has been idled or will idle in the next several days as the coronavirus (Covid-19) continues to dampen gasoline and fuel ethanol demand.

Mexico's private industry proposes economic stimulus
By ICIS Editorial 2020/03/26 MEXICO CITY (ICIS)--As Mexico’s President Andres Manuel Lopez Obrador (AMLO) and his administration has faced criticism for the slow reaction to the coronavirus pandemic, its private sector is calling on federal intervention to counteract the impact on Mexico’s already-fragile economy.

Business groups have asked the government to pause tighter fiscal, monetary policy until crisis passes. Manufacturing  sector is among those that face most pressure from the downturn.

Scale of demand shock is unprecedented, impact from the refinery down

By Nigel Davis 26-Mar-20 19:00 LONDON (ICIS)--It is the scale of the demand shock that is unprecedented. Demand for crude products has crashed - What is the impact likely to be on the supply of refinery propylene and C4s, and of aromatics from the cat cracker?

And what of the supply of oil-based cracker feedstocks?

Refinery integrated crackers face feedstock supply restrictions. It is not clear how widespread this is at present, but some producers are said to be constrained.

PODCAST: Coronavirus creates bright spots of demand for industrial ethanol, glycerine, R-PET, PMMA, IPA
By Will Beacham 2020/03/26 BARCELONA (ICIS)--Among the current collapse in most chemical markets, there are some bright spots of demand for chemicals which create products helping to combat the spread of coronavirus.

These markets include industrial ethanol, glycerine, recycled polyethylene terephthalate (R-PET), polymethyl methacrylate (PMMA) and isopropanol (IPA).

Podcast interview with ICIS editors and market experts Clare Pennington, Katherine Sale, Matt Tudball and Sam Wright.

European plasticizers market starts to see some companies fall victim to the coronavirus

By Jane Massingham 26-Mar-20 16:11 LONDON (ICIS)--Both sellers and buyers of plasticizers are starting to feel the ramifications of the coronavirus, as the spread across Europe is impacting both those producing and those downstream, and this is starting to dent the chain.

    • Further plant closures makes April demand uncertain
    • Day-by-day decisions
    • Logistical constraints a concern
      Restrictions on both personal and professional lives are wide and varied depending on the location of offices and plants

This week there has been confirmation of dioctyl terephthalate (DOTP) producer Valtris being forced to close down its unit in France “in order to ensure sufficient personnel were available to bring the site into a safe shut down status”.

VIDEO: Europe methanol demand hit by coronavirus, weakening prices, and Q2 expectations
By Eashani Chavda 2020/03/26 LONDON (ICIS)--Listen to Markets Editor Eashani Chavda discuss European methanol market volatility and key drivers for Q2.

- Low consumer confidence pushes spot to €160/tonne

- Reduced demand forecast for Q2

- ECP settled at €255/tonne, players call for market stability

PODCAST: Global oil market in turmoil
By Richard Price 2020/03/26 LONDON (ICIS)--The coronavirus is ripping through markets, slashing demand across the globe, while Saudi Arabia and Russia battle for market share.

Global oil editor Sophie Udubasceanu and oil market expert Richard Price discuss this unprecedented series of events, how market players are looking to exploit the shift in market dynamics and what’s to come.

LANXESS sticks to strategy in face of coronavirus outbreak - CEO
By Tom Brown 2020/03/26 LONDON (ICIS)--LANXESS intends to stick to its strategy of organic growth, increasing its focus on consumer protection chemicals and developing battery technology operations in the face of disruption from the coronavirus outbreak, according to the CEO of the Germany-headquartered firm.

The impact of the outbreak is likely to be substantial across much of the economy, but represents a one-off event, with the focus on remaining resilient and continuing to implement measures in the meantime, according to LANXESS CEO Mathias Zachert.

“People are travelling less, big events are being cancelled, logistics will [be disrupted],” he said.

Asian petchems end mixed, oil lower as investors await US jobless claims data
By Nurluqman Suratman 26-Mar-20 17:43 SINGAPORE (ICIS)--Asian petrochemical shares ended mixed on Thursday while crude oil prices fell as investors await key data on initial jobless claims in the US later in the day.

The widely-watched initial jobless claims data would give a clearer picture on the state of the world's largest economy following the coronavirus outbreak, which has now infected close to 500,00 people globally, with the number of deaths exceeding 20,000.

News that US Senate and White House leaders finally reaching an agreement on a $2 trillion stimulus package on Thursday failed to sway investors as fears of the global coronavirus pandemic continued to weigh on sentiment.

Asia ABS retreats on lower feedstock; export demand for finished goods weakens
By Clive Ong 26-Mar-20 13:07 SINGAPORE (ICIS)--Asia acrylonitrile-butadiene-styrene (ABS) prices lost further ground as sellers slashed offers in response to weaker feedstock costs.

Key feedstock styrene monomer (SM) prices slumped to the low $500s/tonne CFR (cost and freight), while acrylonitrile (ACN) and butadiene (BD) markets were also under downward pressure.

Lower feedstock markets prompted ABS buyers to expect lower resin values in the near term.

China’s import PP market weighed down by flood of supply from Asia-Pacific
By Aviva Hu 26-Mar-20 16:40 SINGAPORE (ICIS)--China’s import polypropylene (PP) market has been on a downtrend due to intensive duty-free arrivals from the Asia-Pacific region amid the coronavirus-related lockdowns.

On 25 March, import prices of PP yarn were assessed at $800-810/tonne CFR China, down by $25/tonne from 28 February, ICIS data showed.

Vietnam, Thailand, India, New Zealand, Indonesia, Malaysia and the Philippines have all closed borders or imposed lockdowns to contain the pandemic. Residents in these regions have been asked to stay at home, with mass gatherings either halted or banned.

Asia naphtha’s crack spread turns negative on bearish outlook
By Melanie Wee 2020/03/25 SINGAPORE (ICIS)--Asia naphtha prices are languishing at 18-year lows while the product’s crack spread, a measure of its refining margin, has fallen to negative territory amid bearish market conditions.

Spot CFR (cost & freight) Japan naphtha prices for first-half May delivery averaged at $207.00/tonne at early hours session on Wednesday, rising by a modest $7.50/tonne from the preceding day’s close, albeit still at lows not seen since 2002.

Naphtha’s crack spread against prompt-month ICE Brent crude oil futures closed at negative $9.00/tonne as of 24 March, the lowest since June 2019.

Asian petchem shares, crude oil extend gains on US stimulus
By Nurluqman Suratman 2020/03/25 SINGAPORE (ICIS)--Asian petrochemical shares rallied while crude extended recent gains on Wednesday after US leaders agreed on a fresh $2tr stimulus package aimed at softening the blow of the coronavirus pandemic.

At 06:00 GMT, Asian stock markets were all in the green, with Japan's Nikkei 225 Index up by 7.00% and the Hang Seng Index in Hong Kong 2.64% higher.

US senate leaders reached a deal for the stimulus package - the largest in the country’s history - on Wednesday to combat the coronavirus-induced economic slowdown and to halt the heavy bleeding across the financial markets.

India petrochemical trades stalled; force majeure in place at ports amid lockdown
By Pearl Bantillo 2020/03/25 SINGAPORE (ICIS)--Petrochemical trades in India were disrupted with plants shutting down and ports declaring a force majeure amid a three-week nationwide lockdown meant to contain the spread of the novel coronavirus in the world’s second most populous country.

Buyers in the country have mostly cancelled import orders for some petrochemicals such as styrene monomer and styrene butadiene rubber (SBR).

India is a major importer of acetone, isopropanol (IPA), linear alkylbenzene (LAB), polyvinyl chloride (PVC), synthetic rubbers and ethanolamines.

Chems soar, Dow Jones up 11%, as US gets closer to stimulus deal
By Al Greenwood 2020/03/24 HOUSTON (ICIS)--US-listed shares of chemical companies rose as the Dow Jones Industrial Average increased by more than 11% as lawmakers came closer to passing a stimulus bill.

The deal, worth nearly $2trn, could be passed by Congress later in the day. The US is either in a recession or it will enter one as a result of the economic damage caused by the coronavirus (Covid-19).

INSIGHT: Chem M&A, projects may dry up as recession deepens
By Al Greenwood 2020/03/24 HOUSTON (ICIS)--The combined blows of low oil prices and the coronavirus (Covid-19) pandemic will cause chemical companies to rein in investments, causing declines in mergers and acquisitions (M&A) as well as new projects.

Even before the coronavirus, commodity chemical companies were contending with weaker demand as a result of destocking, said Arun Viswanathan, chemicals equity analyst at RBC Capital Markets.

Europe March benzene spot prices crash over 50% since Monday

By Helena Strathearn 24-Mar-20 16:44 LONDON (ICIS)--Europe benzene spot prices for March have halved in value in less than 24 hours. The cause is demand annihilation.

March was valued at $150-170/tonne on Tuesday afternoon, which is a $185-190/tonne decrease over values seen on Monday. April traded earlier at $150/tonne and at $180/tonne, and twice for H1 April at $175/tonne.

“Demand in Europe is bad,” a trader said, adding that consumers were selling. On Monday, benzene for April traded at $300/tonne. “Today... half price,” the trader said.

Eurozone economy faces 'deep downturn' as March PMI hits lowest level
By Morgan Condon 2020/03/24 LONDON (ICIS)--Business activity in the eurozone collapsed in March to the lowest level on record on the back of a sharp fall in the services sectors' output as the region battles the coronavirus pandemic, analysts at IHS Markit said on Tuesday.

The services and manufacturing composite purchasing managers’ index (PMI) fell from 51.6 points in February to 31.4 points in March, according to a flash reading.

A reading above 50.0 points marks economic expansion; a reading below shows contraction

INEOS to complete UK, Germany hand sanitizer plants in 10 days to address Europe shortage
By Anne-Sophie Briant-Vaghela 2020/03/24 LONDON (ICIS)--INEOS aims to complete two hand sanitizer plants in the UK and Germany in 10 days to produce 1m bottles per month each to address a critical shortage across Europe, the chemicals major said on Tuesday.

A spokesperson told ICIS that the company had been preparing the move for some time, making it confident it could achieve the 10-day timeframe.

INEOS plans to supply the hand sanitizers to hospitals, schools, places of work, pharmacies and supermarkets. Product would be free for hospitals.

India industries scale back operations on lockdown amid pandemic

By Priya Jestin 24-Mar-20 18:04 MUMBAI (ICIS)--Key manufacturing industries in India are either shutting down and scaling back operations as a full-country lockdown was implemented to contain the novel coronavirus pandemic in the south Asian nation.

There are fears that the global coronavirus crisis could endanger recovery in Asia’s second-biggest emerging economy.

Asia aromatics crater on decade-low naphtha market

By Clive Ong 24-Mar-20 15:54 SINGAPORE (ICIS)--Asia's benzene, toluene and xylenes markets were on a nose-dive as feedstock naphtha values tumbled to decade lows amid a hammering of markets by coronavirus pandemic and low crude.

Asia MX falls below $400/tonne mark on weak China demand; market bearish

By Keven Zhang 24-Mar-20 13:41 SINGAPORE (ICIS)--Asia’s isomer-grade mixed xylene prices have been hovering at their lowest in nearly 17 years, with the market outlook bearish on weak demand from China.

Spot prices of isomer-grade MX on a free-on-board (FOB) Korea basis fell below the $400/mark on 23 March to $388/tonne; while the cost-and-freight (CFR) NE (northeast) Asia price stood at $422/tonne, ICIS data showed.

Asia petchem shares, oil prices rebound on US Fed stimulus plan

By Nurluqman Suratman 24-Mar-20 12:05 SINGAPORE (ICIS)--Asian petrochemical shares and crude oil prices rebounded sharply on Tuesday after the US Federal Reserve announced unprecedented measures to support the economy.

Gains were capped by economic growth concerns as the number of countries implementing restrictions on movement continued to grow, including the UK, India and Australia.

USTMA calls for economic relief for US tyremakers amid coronavirus
By Tracy Dang 23-Mar-20 18:00 HOUSTON (ICIS)--A US tyre group is urging lawmakers to enact policies that would provide economic relief to tyre manufacturers and their workers amid production disruptions due to the coronavirus.

US ethanol futures hit another record low
By Alex Snodgrass 2020/03/23 HOUSTON (ICIS)--US fuel ethanol futures fell again on Monday to record lows, surpassing the previous records.

The US industrial ethanol market continues to tighten amid increased demand for hand sanitizers.

Some fuel ethanol producers are now switching to produce ethanol for sanitizers as the Alcohol and Tobacco Tax and Trade Bureau (TTB) created exemptions allowing certain alcohol fuel permit holders to sell industrial ethanol for use in the production of hand sanitizers.

US chem shares fall as Senate debates aid package
By Al Greenwood 2020/03/23 HOUSTON (ICIS)--Shares of US-listed chemical companies continued to fall on Monday as the nation's upper legislative chamber continued to negotiate a $2trn aid bill intended to offset the economic disruptions caused by the coronavirus (Covid-19).

DCP Midstream was the latest midstream company to cut capital expenditures.Other companies, such as Ingevity and Braskem, said that their plants are running normally.

For the oil industry, it is contending with a decline in demand caused by the coronavirus and a price war between OPEC and Russia.

Cooper, Michelin suspend some North American tyre production on coronavirus
By Tracy Dang 2020/03/23 HOUSTON (ICIS)--Cooper Tires and Michelin are the latest tyre makers to suspend North America operations because of impacts from the coronavirus.

Cooper said it will temporarily shut down US and Mexico plants, beginning Monday, on a rolling schedule over the coming week and lasting for two-to-three weeks.

Michelin said on Friday that it would begin a temporary, phased shutdown of some of its US and Canada plants, lasting for at least two weeks.

PODCAST: Hit to chemicals demand worse than 2009, industry in uncharted territory
By Will Beacham 2020/03/23 BARCELONA (ICIS)--Coronavirus means the chemicals industry could face a severe demand shock larger than in the 2008-2009 crisis when operating rates fell to 46%, according to two consultants.

A massive loss of demand around the world for key end use sectors such as automotive, construction, and electronics, leaves chemical companies facing tough choices to maintain their businesses, said John Richardson, ICIS Senior Consultant, Asia, and Paul Hodges, chairman at International eChem.

Government and central bank actions to boost demand and safeguard economies have so far failed to reassure investors, leading to further falls in stock markets and oil prices on Monday.

Europe benzene spot closed down by 33% on Friday after tumultuous week on the markets

By Helena Strathearn 23-Mar-20 13:10 LONDON (ICIS)--The European benzene spot market posted substantial losses last week on a sharp drop in oil prices, with demand floundering because of the profound impact on the industry caused by the coronavirus pandemic.

March prices closed 33% lower on Friday versus the week before, putting values in line with Q1 2009 levels. Decreases of up to $175/tonne brought the closing range to $340-360/tonne for March, and falls of up to $195/tonne brought April to $330-350/tonne. Four weeks ago, closing values were $660-680/tonne for March.

• Prices fall 21% week on week
• 36% drop in prices since end of February
• Bids see sharpest ever daily fall midweek

Total, Shell slash spending plans, suspend share buy-backs

By Tom Brown 23-Mar-20 13:49 Total and Shell on Monday announced plans to cut spending and reduce costs in the face of dramatic falls in the price of oil and an expected global recession this year due to the spread of coronavirus.

Shell is to cut underlying annual costs by $3bn-4bn over the next 12 months compared to 2019 levels and cut capital expenditure to $20bn or below for this year compared with plans of $25bn, increasing pre-tax free cashflow by $8bn-9bn.

Total is to reducing operating capital expenditure levels by $3bn this year, a cut of over 20% on planned levels, and reducing 2020 outflows to under $15bn, and increasing its planned cost savings for 2020 from $300m to $800m.

India boosting ethanol output for sanitisers on coronavirus pandemic
Author: Priya Jestin 2020/03/23 MUMBAI (ICIS)--India has asked its state governments to ensure continuous availability of ethanol/ ethyl alcohol/ extra neutral alcohol to manufacturers of hand sanitizers to meet the surge in demand due to the coronavirus pandemic.

"Necessary permissions on account of licensing and storage of ethyl alcohol/extra neutral alcohol (ENA)/ethanol may be accorded by the state government agencies to sanitizer companies up to their installed capacity without any quota restriction on supply," the Ministry of Consumer Affairs has stated in a circular.

State governments have also been asked to give permission to distilleries on a priority basis to produce sanitiser in bulk, which can then be packed and bottled.

Asia IPA prices hit 67-week high; market sentiment bullish
By Yuanlin Koh 2020/03/23 SINGAPORE (ICIS)--Asia’s isopropanol (IPA) prices hit a fresh high in 67 weeks on 20 March 2020, one of the few chemicals surging in demand and price amid the ongoing coronavirus pandemic and crude falls.

Sentiment remained bullish as IPA supply tightened in the current open Asia-to-Europe arbitrage.

As the number of coronavirus cases surge in Europe, demand continued to outstrip supply, causing traders and buyers to turn to Asia to procure IPA, some to provide more sources of IPA, while others who were not in the IPA business also entered the market, hoping to earn a quick buck.

Asian suppliers, citing lucrative margins, sold the majority of their cargoes there.

ICIS Webinar: Falling oil prices squeeze polymer margins
By Al Greenwood 2020/03/25 HOUSTON (ICIS)--The crash in oil prices is squeezing margins for polymer producers around the world, especially for those in the US.Polymer prices tend to follow crude oil with a time lag of about six weeks, according to the ICIS Petrochemical Index (IPEX).

ICIS Webinar: Coronavirus restrictions gum up polymer logistics
By Al Greenwood 2020/03/25 HOUSTON (ICIS)--Measures intended to slow the spread of the coronavirus (Covid-19) are gumming up international trade flows and imposing logistical bottlenecks on supply chains.

In some cases, countries are concerned about letting foreign ships into ports, said Zachary Moore, ICIS deputy managing editor, Americas. These disruptions to trade are coming at a bad time for US producers, who spent much of the past decade building new polyethylene (PE) plants with the intention of exporting much of their product to foreign markets.

ANALYSIS AND RESOURCES

US Fed’s new corporate debt programme opens relief valve for chemicals

The US Federal Reserve’s unleashing of unlimited QE (quantitative easing) in response to the coronavirus is expanding to corporate bonds, providing more liquidity for certain US chemical companies if they need to borrow directly from the government or issue more debt, writes Joseph Chang.

However, the types of corporate debt the Fed will support is key. In its 23 March statement, the Fed limits its lending and planned purchases under two new facilities to investment grade companies.

Investment grade credit ratings are Baa3 or higher by Moody’s Investors Service or BBB- or higher by Standard & Poor’s. This won’t directly help those with weaker credit profiles.

For investment grade chemical companies, the Fed move to buy corporate bonds offers a prime opportunity to raise new debt at low cost and push maturities much further out, if needed.

This would alleviate immediate solvency concerns - concerns that are at the forefront of investors’ minds and even regarding investment grade companies amid chaotic financial markets.

TWO NEW FED MECHANISMS
The Fed is employing two mechanisms to support corporate debt, but again, for investment grade firms only.

The first is the Primary Market Corporate Credit Facility (PMCCF). This facility will provide bridge loans to companies for four years. Borrowers can defer both interest and principal payments for six months, a feature that is extendable at the Fed’s discretion.

The second is the Secondary Market Corporate Credit Facility (SMCCF) which will directly buy investment grade corporate bonds on the open market. This will support bond prices, allowing high quality companies to issue debt at lower rates.

The second mechanism is critically important since corporate bond prices - even those rated investment grade - have been crushed along with stock prices, sending yields higher at a time when low borrowing rates are desperately needed.

“While fiscal authorities have been moving very slowly unfortunately, the Fed has been firing up new measures at an unprecedented pace,” said Yelena Shulyatyeva, senior US economist at Bloomberg LP on a 23 March National Association for Business Economics (NABE) conference call.

“By deploying its crisis-era programmes and facilities, and expanding them much further beyond what was implemented during the great recession, the central bank is essentially working to curtail the further spread of financial market turmoil,” she added.

INVESTMENT GRADE FIRMS
For the North American chemical sector, companies with investment grade credit ratings that would be able to take advantage of the Fed’s new corporate debt facilities include Dow, LyondellBasell, Westlake Chemical, Celanese, Eastman Chemical, Methanex, Chevron Phillips Chemical, PPG and RPM International.

“In chemicals, most investment grade companies are in reasonably good condition. So long as they don’t make any policy moves that hurt creditors, they’re probably going to be OK,” said John Rogers, senior vice president covering North American chemicals at Moody’s.

“While chemicals are not directly impacted by the coronavirus like airlines, restaurants, hotels and gaming, we view this as a recession, and there will be collateral damage to chemicals as such,” he added.

For publicly traded US chemical companies, most have already back-end loaded their debt maturities, facing little pressure in the near term with sufficient cash on hand and projected cash flow to meet those obligations.

NOTE: Total debt may not reflect other short-term borrowings, maturities can reflect short-term lease obligations
* Dow on 25 Feb sold €2.25bn in Euro notes due 2027, 2032 and 2040, paying down $1.5bn in debt due 2022 and other debt
** Huntsman on 5 Jan sold its intermediates business to Indorama for around $2bn
*** Principal payments to be made on debt, incl short-term borrowings
Source: US Securities and Exchange Commission, compiled by ICIS

For example, investment-grade rated Dow should be nearing around $3bn in cash on hand ($2.4bn at year-end 2019) on hand and faces no major debt maturities until 2023 ($2.5bn). It was fortunate to have sold €2.25bn in euro notes on 25 February that mature in 2027, 2032 and 2040. Proceeds were used to pay down $1.25bn in debt coming due in 2022, as well as $750m in term loans.

Westlake Chemical, also in the investment grade category, faces only a $250m debt maturity in 2022 while cash at the end of 2019 was $728m. The rest of its long-term debt - $3.25bn - comes due in 2026 and beyond. About $1.7bn of this debt is pushed out as far as 2046 and 2047.

Trinseo, which is in the speculative grade (non-investment grade) category, has no debt maturities until 2024 when $684m comes due. It ended 2019 with $456m in cash on hand.

While investment grade US chemical companies would be able to tap the Fed facility for direct loans or issue new debt, the need is not pressing at this point, said Rogers from Moody’s.

“Companies may be lining up lines of credit versus new debt to push out maturities - there’s not a lot of need to do that. Debt maturities are in pretty good shape for investment grade chemical companies,” he added.

However, in the past 10-15 years, North American chemical credit ratings have slipped from the high A-rating end as the spreads within investment grade have compressed, allowing companies to make acquisitions and buy back stock with little penalty, noted Benjamin Nelson, vice president and senior credit officer at Moody’s.

“Now that spreads have widened, there will be a difference in cost going to market,” he said.

RISK OF DEFAULT
Among Moody’s coverage of North American chemical companies, just three are at risk of default or debt restructuring if upcoming maturities are not addressed. These are in the C-rated group - thermoset resins producer Hexion, and agricultural products companies Pinnacle Operating Corp and Verdesian Life Sciences, said analysts in a 20 March report.

In Moody’s B-rated category, refinancing risk in 2020 is “manageable”, with 10 of the 44 companies in the category having a total of around $2.2bn in debt maturing in the next two years.

“This represents only 7% of total outstanding debt of B-rated chemical companies and most is comprised of revolving credit facilities, which the companies should be able to extend,” said the analysts.

“Still, weak credit metrics or deteriorating macroeconomic conditions pose refinancing risk for some companies,” they noted.

STIMULUS PACKAGE NEEDED
While the Fed is taking unprecedented measures to support financial markets, including corporate debt, fiscal stimulus is the key to any recovery. As of the early evening of 23 March, Congress has yet to agree on a package.

“The Fed’s latest actions, if matched by a swift and massive fiscal stimulus… will have a significant impact on the real economy. It will not save the second quarter of this year, but it will help the economy recover when the crisis is over,” said Shulyatyeva.

“However the size and the timing of the fiscal package will determine whether the economy starts to recover in the second half or whether the contraction extends further and deeper,” she added.

But forget about a V-shaped recovery for the US economy, the economist said.

“It’s not going to be a V-shaped recovery and not even a U-shaped one. We call it a hockey stick or L-shaped, and this will only be possible if the fiscal package will get through,” said Shulyatyeva.

“This is definitely not a temporary situation - it will stay with us for some time, and frankly every day the situation becomes much worse in the absence of a fiscal package,” she added.