ICIS WEBINAR: Chems to see H2 demand pick up, but coronavirus challenges remain

HOUSTON (ICIS)–US and European chemical producers will see sequential improvements in demand in H2 as economies emerge from the Q2 coronavirus (Covid-19) lockdowns and restrictions.

However, challenges remain and it could take a long time before producers are back at their pre-crisis performance, ICIS experts said in a webinar – “Chemical industry state as H2 draws near” – on Thursday.

A full economic recovery will only be possible once a vaccine or other treatment is available – meaning that consumers have the confidence to go out and spend without the fear of infections, they said.

Meanwhile, in many ways the crisis has accelerated broader trends and challenges chemical producers were already facing before the pandemic began hitting North America and Europe in March – such as over-capacities, trade tensions, regionalisation, China’s self-sufficiency drive, or environmental sustainability, they said.

The speakers were Jeremy Pafford, North America Market Development, who hosted the webinar; Al Greenwood, ICIS Americas deputy news editor and senior correspondent; Joseph Chang, ICB Global Editor; and Nigel Davis, Global Insight Editor.

DEMAND
As chemicals feed into most sectors of the economy, the industry’s prospects depend very much on how quickly overall demand recovers.

While some markets, in particular auto, remain “extremely challenging”, the US construction market is performing better than expected, and demand for chemicals and materials from sectors such as consumer packaging or healthcare remains strong, the experts said.

Regionally, the recovery in Europe may be slower than in the US.

In the US, coronavirus-induced record-high US unemployment recently stabilised somewhat.

However, companies are still cutting jobs as they respond to demand declines, meaning that the outlook for demand in many chemical end markets is bleak, the experts said.

Still, demand from the US construction sector “held up relatively well”, and other markets, such as consumer packaging, are showing resilience, said Joseph Chang.

At the same time, equity analysts covering chemicals are trying to look beyond the recession and have become more bullish, he noted.

This could point to an end of the recession “at some point” as chemical stocks tend to outperform the market in the early stages of a recovery.

However, the experts also cautioned not to read too much into the share price movements.

In fact, Jeremy Pafford said that an argument could be made that a lot of the upside in US equities is based on monetary stimulus – rather than actual improvement in consumer demand.

The Federal Reserve measures have made bonds relatively unattractive, prompting people to put their money into equities, he said.

The US economy may need more fiscal stimulus in H2 as the Fed monetary policies can do only so much, the experts said.

EUROPE
In Europe, the business outlook remains poor amid “massive unemployment” and there remain big questions as to how and when demand will come back, said Nigel Davis.

While demand for chemicals and materials from the packaging market or from healthcare keeps up strongly, that was not the case for the many polymers going into autos or manufactured goods, Davis said.

“We have a long way to go, a long, long way to go”, he said.

CHINA
Davis also pointed to the challenges US and European chemical firms that export to China are facing as that country keeps building up new ethylene and other petrochemical capacities in order to become self-sufficient.

“Import substitution is a big, big thing for this industry over the next few years,” he added with reference to China.

In the near term, chemical producers are looking to see “if China is going to be producing hard in August”, and thus buy chemicals and plastics, to meet end of year market demand for its exports to the US and Europe, Davis said.

“Have [China’s] businesses come back in a way that we are told they have, are supply chains robust enough to export finished goods to Europe and the US?” he asked.

AUTO
The experts all agreed that the global automotive market “is going to be tough for a long time”, with auto builds unlikely to regain pre-crisis levels before 2023.

Still, even the troubled auto sector may have bottomed.

Al Greenwood pointed to an update this week by US-based auto coatings firm Axalta, which reported May sales up 15% from April, with June sales expected to improve on May, indicating that “things are improving”.

The state of the auto sector is set to feature in the upcoming US chemical industry Q2 earnings season, starting with US adhesive producer HB Fuller which is due to release quarterly results already next week, Greenwood said.

SUSTAINABILITY AND RECYCLING
The coronavirus crisis will not change the move towards sustainability, emissions reductions and recycling, in particular in Europe, the experts said.

Davis pointed to recent comments from BP which suggest that the push for CO2 emissions neutrality will gather pace, rather than slow, and that increased plastics recycling and a ban on single use plastics could limit oil demand growth in coming years.

Also, US major Dow this week reiterated its commitment to emissions reductions and recycling.

In the US, the upcoming November elections could lead to new green initiatives in that country – if the Democrats’ candidate Joe Biden beats President Donald Trump and the Democrats should get majorities in both houses of Congress, Pafford added.

Greenwood noted that legislators in the House of Representatives recently introduced a new recycling bill.

At the same time, US firms keep announcing recycling projects and targets, he said.

While some jurisdictions deferred environmental measures during the crisis, including planned bans on single-use plastic bags, the recycling targets retailers, manufacturers and others have set “will not go away”, Chang added.

He also noted that as part of some of the stimulus measures in Europe, some governments provide incentives for electric vehicles (EVs) – meaning that the crisis is accelerating, rather than slowing, the drive to more environmental sustainability.

Visit the ICIS coronavirus topic page for analysis of the impact on chemical markets and links to latest news.