INSIGHT: Europe struggling with second wave lockdowns, EU needs recovery plan

Author: Nigel Davis

2020/11/27

LONDON (ICIS)--Chemicals trade group Cefic is downbeat on European chemical industry performance running into the year end, highlighting the seriousness of the second wave of the Covid-19 outbreak and its expected impact.

Other agencies had been more upbeat through the autumn months with the regular data charting the upturn since May. And in their most recent quarterly financial reports, most chemical companies operating in the region were trying to be positive too, pointing to the fact that October had been better than September.

Forward visibility was limited, however, although there was a sense that, for petrochemicals at least, a typical fourth-quarter lull might not be seen this year because of reduced inventories and more 'just in time' buying.

These reports, however, were made as second wave lockdowns began to bite.

The widespread nature of restrictions on movement and on retail and hospitality venues, alongside the continued impact of the virus on air travel, is putting more strain on European economies.

EU 27 chemicals production, January to September 2020 down 4.4%

Source: Eurostat and Cefic analysis, November 2020

Oxford Economics on Friday contrasted the marked fall in the EU’s Economic Sentiment Indicator for November with the apparent resilience of the manufacturing sector – the contrast between the decline in the sentiment indicator for services compared with that for the industrial sector.

Business and consumer confidence has fallen sharply in Europe, but the decrease is much less than it was earlier this year, the economics group highlighted.

Mass vaccination is possible in Europe relatively quickly, perhaps delivering herd immunity from the virus by the summer of 2021, although Oxford Economics points out that a return to normal could take longer.

Output growth for key EU manufacturing sectors

Source: Eurostat and Cefic analysis, November 2020

In its quarterly report Cefic said that early signs are that the recovery, which started in May in Europe, is slowing down. “The length and severity of the second wave are the key parameters to be followed to further assess the impact of Covid-19 to the business landscape the upcoming months.”

Europe’s chemicals output was 4.4% lower year on year in the first nine months of 2020. That compares with a global fall of just 1.8%. European production has staged a smart recovery quarter to quarter with the third quarter increase in production of 6.1% compared with the 8.7% fall in Q2.

The country data show that chemicals output in France and Italy has been hardest hit by the pandemic with the impact less in the Netherlands, Germany and the UK.

EU chemicals exports recovered in June and July but fell sharply again in August. The data show EU petrochemicals exports to the US increasing by €2.7bn in the January to August period but a significant decrease in exports of specialty and consumer chemicals. Imports into the EU 27 were down over the same period but imports from China were up.

The second wave of the virus in Europe “underpins the need for rapid approval and implementation of the EU Economic Recovery Plan, that needs to be firmly embedded in the EU Industrial Strategy and the Green Deal agenda,” said Cefic Director General, Marco Mensink.

The situation in Europe can be contrasted with that in the US where economic reports generally have been positive.

Chemical industrial production was down in September, largely because of the hurricanes that hit the US Gulf coast but rebounded (up 2.2%) in October.

Gains were seen across the board, the American Chemistry Council (ACC) said from bulk inorganic and organic (petrochemical) products to specialties, agriculture chemicals and consumer products.

Chemical railcar loadings, said to be the best real time indicator for chemical industry activity, fell 2.2% in the week ending 14 November and were down 4.4% on a year to date basis. Loadings had been rising for six of the previous 13 weeks, however. The 13-month moving average (calculated to smooth out volatility) was down 3.0%.

INSIGHT by Nigel Davis

Front page image: A man walks past a closed cafe on the Champs-Elysees in Paris on the first morning of France's second national lockdown on 30 October. Source: IAN LANGSDON/EPA-EFE/Shutterstock