INSIGHT: Chemical distributors benefit from diversity through coronavirus lockdowns

Nigel Davis

15-May-2020

LONDON (ICIS)–Distributors generally had a reasonable first quarter financially although business in industrial sectors like automobiles and demand for products destined for the oil industry were impacted by at the time impending pandemic.

As with most industrials, the second quarter is likely to prove to be very different.

Industry leader, Germany’s Brenntag, said that its oil and gas business has been badly affected by the oil price collapse and that anything connected to automotive has taken a noticeable hit.

Food, nutrition, personal care, and water treatment have all performed well, the company’s CEO Christian Kohlpaintner said.

“It’s not as simple as saying that industrial has been badly hit and specialties less so. It’s determined more by the end use markets,” said Kohlpaintner.

All companies are looking to conserve cash now, and maintaining operations is paramount.

It is a balancing act between having employees working from home and upholding the safe working of those in the warehouse and on the road.

Inventories have to be managed physically as well as financially, although for the distributor, generally, big bets do not have to be made on order value.

It is the financial health of customers that is potentially of concern the longer the depressing impact of the pandemic is felt.

SAFETY IN SOCIAL DISTANCING TIMES
Chemical distributors are impacted more than most companies in the sector by the challenges of working through the coronavirus lockdowns and as restrictions are lifted.

Social distancing is a major issue for them as is the handling and delivery of small lots of chemicals to a widespread customer base.

Guidelines collated by trade associations and others are necessarily detailed and tricky to implement, and these are particularly trying times as multiple agencies seek to control further spread of the virus.

Providing essential supply chain services, particularly for sanitation products and those necessary for health and well-being, distributors have kept warehouses open.

Kohlpainter said that 49% of its 17,000 employees had been working remotely but that its warehouses had remained open, allowing it to serve customers globally.

Netherlands-based distributor Caldic said to ICIS that it had remained 100% operational through the crisis, classified as an essential industry.

The company has encouraged working from home although employees clearly miss the social interaction afforded by close interaction with colleagues, said Caldic’s CEO Olav Van Caldenborgh.

New health and safety protocols involve social distancing, more handwashing, the use of hand sanitizers and restrictions on the use of communal areas such as canteens.

Staff have remained on site including those involved with warehousing, trucking, the company’s laboratories, quality control and manufacturing.

Caldic is a distributor with 75% of its $1bn sales in life sciences (food, health, pharma and personal care related), and demand in this segment has remained stable or grown in areas such as food retail, cooking, and sanitation.

The challenges are where customers have been forced to close and logistics delays in the delivery of some products.

Unsurprisingly, demand from products such as isopropanol (IPA) and pharmaceutical-grade ethanol have soared.

As lockdowns are lifted and economic activity resumes, product diversification will be even more important for chemical distributors.

DIVERSIFICATION KEY
The President of the US National Association of Chemical Distributors (NACD), Eric Byer, told ICIS that the country’s chemicals distributors are generally pulling through the crisis, with product diversification a key strength.

“Companies have done a good job diversifying their portfolios so that high demand for products, such as IPA and ethanol for hand sanitizer, helps offset weakness in oil services, automotive and other sectors,” said Byer.

That doesn’t mean that distributors have not been challenged to replenish supplies through the lockdowns, so diversification will be key as business begins to come back.

“During this challenging time, most distributors have not laid off staff as they are essential service providers,” said Byer.

“They’re doing a good job of keeping both sides of the house working – the workers driving trucks and operating forklifts, and those on the admin side such as in billing.”

How well distributors have been able to perform financially in the second quarter remains to be seen, and is dependent on many shifting factors.

The underlying strength in diversity, however, works in favour of companies in the sector, as does the fact that they have been able to sustain operations through the lockdowns.

This period of shifting from exceptional to more normal (or new normal) operations presents significant challenges.

Brenntag, for instance, alongside others, is not offering earnings guidance for 2020.

“It is not realistic to give a forecast for 2020 and we have pulled our guidance,” Kohlpainter said.

“As soon as we have better visibility, we will update the market.”

Insight by Nigel Davis

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