INSIGHT: Polymers face major demand shock from coronavirus in all forecast scenarios

BARCELONA (ICIS)–Coronavirus lockdowns could have a devastating impact on many important end use markets for chemicals, with a serious knock-on effect on important polymers such as polyethylene (PE) and polypropylene (PP), according to new demand scenarios developed by ICIS analysts.

With most countries in Europe and parts of the US already under severe  restrictions, the manufacturing economy is collapsing, with automotive at a standstill, construction declining and other sectors under intense pressure.

ICIS Senior Analysts Ciaran Healy and Rhian O’Connor have modelled the impact of three coronavirus lockdown scenarios on important end uses for chemicals.

– Short – Strong, short lockdowns for around two months, with a return to normal by the end of the year

– Long – Assumes global spread of coronavirus, followed by lockdowns; disruption lasts into the third quarter, with gradual lifting; China records a partial resurgence, with Europe and the US following in November-December

– Temperature – Similar to Long, but assumes virus is limited by hot, summer weather in the northern hemisphere; the Middle East, south, southeast Asia, and Africa less impacted by virus.

The shutdowns are expected to have a very significant and long-lasting impact on the manufacturing economy, according to the ICIS scenarios.

It is forecast that the automotive sector will be at a standstill for several months.

Graphs show the percentage deviation from pre-virus patterns of demand.

Click on the graphs and tables to enlarge

–
“The big implication is that more industrialised regions, with more complex supply chains, will be hit more severely by the restrictions,” said Ciaran Healy, ICIS Senior Predictive Analyst

“Areas reliant on automotive or electronics manufacture, for example, will be more vulnerable than less sophisticated economies.”

For the full year 2020, the impact could be very significant in some segments, with the US and China losing 40-50% of their annual vehicle production in the Long scenario.

However, agriculture, food and beverage, paper and printing, consumer non-durables, and construction are forecast to be relatively unaffected, achieving around 100% of their usual levels of production.

Table shows the percentage deviation from pre-virus patterns of demand for full year 2020.

–
The scenarios show a collapse in consumption of polymers during the initial phase of shutdown, with recovery at different rates in the three scenarios.

“Our long scenario assumes quite a big secondary impact in the second half of 2020 in China. Manufacturers there will face disruption to international supply chains and reduced export markets for goods, because the rest of the world is suffering the shutdowns later,” said Healy.

He added a severe impact is expected in the US, but later than in Europe and lasting a few weeks longer.

“We see a significant amount of pain and some of this demand will be lost forever,” he added.

PP and high density polyethylene (HDPE) – used more in manufacturing –  are expected be hit harder than low density polyethylene (LDPE) and linear low  density polyethylene (LLDPE), which are used more for packaging.

PP is such a driver of propylene demand (around 60%) that the analysts expect a big reduction in demand for propylene too.

Graphs show the change in consumption from pre-virus ICIS base case (thousands of tonnes/week).

–
For the full year, the impact is mostly in single-digit percentages, with HDPE and PP affected more severely than LDPE.

This table shows the full year impact on consumption of polymers compared to the pre-virus ICIS base case forecast.

–
The analysts also created updated cost curves which show how shale gas-based producers have now completely lost their cost advantage over naphtha-based competitors.

Front page picture: Local cleaners (front) in the Madrid region stop by a hospital to pay tribute to health workers (rear) on Wednesday as Spain battles the second largest coronavirus outbreak, only after the US
Source: Fernando Villar/EPA-EFE/Shutterstock

Insight by Will Beacham

To discuss these demand scenarios please contact Ciaran Healy on ciaran.healy@icis.com

Click here to watch a webinar where both Healy and Rhian O’Connor discuss the new scenarios (scroll down to 6 April).

Visit the ICIS Coronavirus topic page

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