Possibility of recession weighs heavy on Europe chemicals distribution sector

Morgan Condon

13-Jun-2022

LONDON (ICIS)–European chemicals distributors face tough times in coming months as consumer demand is weighed down by ever-increasing prices, with the sector bracing for a negative impact.

Chemicals supply chain executives discussed the issue at a roundtable conducted by ICIS and the European Association of Chemical Distributors (FECC) on Monday, where speakers discussed logistics and supply chain pressures.

“It’s probably true that we’re going to be heading into some kind of recession, however big, long, or short, the recession that might be, said , Phillip Gibbons, CEO at UK-headquarted chemicals distributor Cornelius.

“And, obviously, that will impinge on demand. I suspect some of us might even have seen one or two early signs of that happening. So, it’s going to be a case of making sure that you look after the fundamentals of your business during a tougher economic time.”

Meanwhile, the managing director of Germany’s IMCD Group, Lars Wallstein,  concurred that rising costs are set to have an impact on demand, although conceded it is hard to know how consumers will respond to the high-inflation environment.

“Inflation was driven by energy [in previous months] but it has now moved through to the production processes … And it is here to stay for some time,” said Wallstein.

“Because it is not only about transportation and our prices, but also about the services sectors and a serious lack of competition.”

IMPORTS
As a net importer, Europe could be at particular risk from not receiving materials made in other regions, due to fraught supply chains, with China as the dominant region for chemicals production.

Andreas Frueh, CEO at Germany’s TER Chemicals Distribution Group, said that while Europe owns its dependency on China for production, several things would need to change to make Europe’s independence in sourcing raw materials a reality.

“In the long-term, we are looking for alternative suppliers [to China]. But in a short-term perspective, we should be in a place of restocking of material again to avoid shortages, so our customers have the security that we are able to supply them if needed,” said Frueh.

POST-PANDEMIC WORLD
Although lockdowns to cap infections of COVID-19 in China in 2020 disrupted the status quo for many businesses, including the chemicals distribution sector, a possible spike in infection rates is not the problem it once was for the industry.

“I would say that over the last two years we have gained a bit of experience around handling a flare up of COVID-19 cases. But what it [spikes in cases] would mean is that some supplies might become scarce,” said Patrick Barthels, CEO at Oqema.

“I do believe that people are less nervous than they would have been a year or two years ago, and the impact would less severe than it was. Beyond COVID-19,  the bigger impact is on political changes, as well as logistics: scarcity of containers and things like that that we are already seeing,” said Barthel.

“The only exception might be in China, with its zero-COVID-19 strategy.”

Although speakers were in agreement that the world is a different place now, compared with March 2020, Frueh said that it would be too early to establish whether things are better or worse in the wake of the pandemic.

While the industry has adapted to working remotely in the past two years, and adopted increased digitalisation, there would still be room for improvement.

According to data cited by Wallstein, below 30% of ships arrive on time, while 10% of capacity in floating goods is lost; he suggested distributors could ease the pressures through increased use of warehouses.

“It [fixing shipping disruption/losses] will create tremendous extra cost … and it will take a long time,” said Wallstein.

“That is why most of our customers are actually pretty nervous still around the situation.”

Front page picture: Hamburg’s port in north Germany; archive image
Source: Action Press/Shutterstock 

Focus article by Morgan Condon

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