CORONAVIRUS OUTBREAK: Is the global Chemical Industry at risk?

What is coronavirus?

Coronaviruses are a large family of mostly zoonotic viruses (transmitted from animals to humans) that cause diseases ranging from common cold to fatal illness. Coronaviruses were first discovered in the 1960s, the other popular viruses of the family include SARS-CoV that outbroke in 2003, HCoV NL63 in 2004, HKU1 in 2005 and MERS-CoV in 2012. The recently identified virus of this family, SARS-CoV-2, has sparked alarm at the global level for the outbreak of respiratory illness called COVID-19.

As there is no vaccination available for COVID-19, the best way to prevent the illness is to avoid exposure to the virus. Here are some tips to prevent COVID-19 infection: wash hands often, use a hand sanitizer, avoid close contact with people, wear a facemask, and distance from people if COVID-19 is spreading in your community.

Coronavirus. Photo courtesy: CDC

Coronavirus risks global economic growth

The current coronavirus epidemic has taken the world by a storm, infecting over 349,900 and killing about 15,000 people. The coronavirus menace has created panic among people leading to the cancellation of general meetings, popular events, and even schools & offices. The fast-spreading coronavirus has triggered extreme fear in the financial market too. Industry experts paint a grim picture of the global economy and financial markets with tough recovery.

According to the reports, the hardest-hit sectors due to the coronavirus epidemic are the airlines and hospitality industries. With about 585 international flights canceled by 6 March 2020 and a 35% fall in the restaurant business, the fear of further economic slump continues. The United Nation recently predicted an impact of $1-2 trillion on the global economy in 2020.

The different sector of the economy majorly affected by the coronavirus epidemic:

The spreading coronavirus is casting a shadow over the chemical economy

As the world is fighting coronavirus, the economic impact is on the rise with a threat to the global economy. The chemical market slumped with businesses dealing with reduced revenue generation and disrupted supply chains due to China’s chemical factory shutdowns.

The quarantine restrictions in China have led to a huge impact on the global chemical supply chain. The slowing down of chemical demand and supply from China is expected to affect the outlook of suppliers and buyers across the globe. According to an analysis by Reuters, China’s economic growth is expected to slow to 4.5% in the first quarter of the year 2020. This is the slowest growth pace of China after the financial crisis in 2008. As the disease continues to grow rapidly, global chemical production, supply, and demand continues to suffer.

The chemical market slowdown in China

Being the manufacturing hub, China is the cogwheel of the global chemical industry contributing 35.8% of global chemical sales in 2018. The disruption in the production of chemicals in China’s Hubei province, the epicenter of the coronavirus outbreak, has led the global chemical market feeling the heat. According to the United Nation economists, this could result in a 50 billion dollar decrease in exports across global value chains. Chemical production capacity after corona has led to a shortage of key chemicals which has created a fear of further decline in the chemical economy.

With the coronavirus outbreak spreading rapidly in China, the global chemical market has seen a slump in demand and production. China being the world’s second-largest economy holds an important position in the global supply/demand chain, so economic fallout from coronavirus also threatens global growth. The sinking China economy is a threat to the global market. 

Coronavirus impact on the pharmaceutical industry, drug shortage threat continues

China’s manufacturing plants produce and supply the APIs (Active Pharmaceutical Ingredients) used to make drugs. The coronavirus has a major impact on Chinese manufacturing units. Recently, the FDA (Food and Drug Administration) had reported the shortage of a certain drug due to coronavirus-related disruption at a Chinese manufacturing plant that produces the API used to make the drug. 

The chemical industry sectors affected by China’s collapsing market

The chemical manufacturing plants shut down in China and the restrictions on international shipments/logistics have a major impact on the global chemical industry. 

The corona impact on the chemical industry:

Organic chemicals: China is the world’s largest consumer of polyethylene, monoethylene glycol, polypropylene, and paraxylene. The restriction to import these chemicals due to the coronavirus outbreak has led China’s chemical industry to collapse 15-25% demand during February. This is affecting the global supply and demand chain of organic chemicals.

Chlor-alkali market: China is the largest producer of chlor-alkali in the world. The coronavirus outbreak has reduced the chlor-alkali operation in China drastically. According to a report by IHS Markit, at least four Chinese plants have shut down production in February. The combined annual capacity of these plants is about 1.5 tonne.

Pesticides: The pesticide supply chain has been heavily impacted by the coronavirus outbreak. The production of many pesticide macronutrients and the agricultural active ingredients are heavily dependent on China. The current COVID-19 epidemic has affected the global pesticide supply chain. The chemical industry is also seeing a meltdown, slowly hitting the global chemical supply and demand.

Oil and gas: The oil and gas industry has seen a gradual decrease in the past few weeks. The demand also went down as general meetings and public gatherings were canceled and people started staying home. The International Energy Agency reported the global oil demand has seen a fall of 730,000 barrels a day in 2020. The further demand/supply of the oil remains uncertain.

Rubber industry: China contributes to the world’s 70% rubber production. The coronavirus outbreak has led to the shutdown of rubber production in many parts of China as businesses close due to travel disruption. The impact on the rubber industry is expected to continue.

Chemicals demand and supply in India after corona

The chemical import dependence of India on China is huge. In fact, China is the 3rd largest export partner of India, accounting for about 5% of its total export share. China supplies about two-fifth of India’s organic chemical purchase and thirteen percent of inorganic supplies. 70% of active pharmaceutical ingredients and 28% dyes are also imported from China. With this huge dependency of India on China, the Chinese chemical market shutdown due to the coronavirus outbreak has affected the Indian chemical industry. The deficit of chemicals in India after corona virus has led to about 20% less production.

Is coronavirus likely to cause a global chemical economy slump?

The global chemical market faces a fall down and fear of further crisis after the outbreak of the coronavirus epidemic in China. The countries most affected by the coronavirus outbreak are China, Italy, Iran, Spain, South Korea, Germany, France, USA, Switzerland, and the UK. These countries play an important role in the global chemical supply/demand chain. Hence, the growing crisis due to coronavirus has led to a major collapse in the global chemical economy. 

The chemical market has been immensely affected by Italy’s decision to close Milan partially, the US oil price crash, and the chemical factory shutdowns in China disrupting the global supply chain. The collapsing market is a warning to the companies to implement the best business continuity plan in place to create an effective roadmap to recover from the coronavirus effect. 

How can global businesses mitigate the crisis?

The coronavirus epidemic which was reported on 31st December last year is quickly spreading beyond Wuhan, China and reached over 140 countries. The temporary shutdown of manufacturing units and corporate offices in China, to avoid further infection, has led to a major collapse in the global chemical industry. With the growing travel restrictions and effect on the global logistic services, it is important to set an alternative plan to keep the economy up and running. 

Alternative measures to source Chemicals: Corona impact on chemical industry has been quite significant, hindering chemical production in China. Due to quarantine restrictions, China had temporarily shut down manufacturing units, corporate offices and retail stores. The alternative to deal with the current situation is to buy chemicals online. With the global demand for chemicals on the rise in the current scenario, choose online chemicals – easy way to shop chemicals.

With the recent chemical market slump, sourcing chemicals is the best way to move forward. Chemical supply can be focused on other countries until China is recovered from the current chemical market collapse. The manufacturers have established their presence in the local geographical area while consumers may not be aware of it. In the current scenario, online chemical e-commerce is the best alternative for chemical buyers. The buyers will not just have access to the chemicals, but they can choose from multiple manufacturers available for one chemical. There is more to it! Price transparency and price comparison are some of the benefits which are not available in the conventional chemical buying process. Chemical e-commerce will boost the supply and also give an opportunity for the local manufacturers to increase the visibility. To tackle the chemical supply issues of the recent times, buy chemicals online.

Until China recovers from the current scenario, the global chemical supply can focus on other chemical suppliers such as India, Ireland, Japan, Singapore, and Netherlands. This will help the economy to run an appropriate level.

The ongoing spread of the coronavirus has hit the chemical supply and demand at a global level. The estimated global effects further depend on severity of the epidemic and the change in the sources of the supply.