COVID-19 coronavirus weighs on economy, chemicals

The coronavirus outbreak continues to squeeze the global economy and, with it, chemical companies. How deep the impact will be, and whether the world economy will slip into a recession, depends on how long the COVID-19 pandemic lasts.

The Dow Jones Industrial Average has lost almost 30% of its value since mid-February because of coronavirus worries. Astonishingly low demand and a price war between Russia and Saudi Arabia have pushed oil prices down 60% since the beginning of the year to well below $30 per barrel.

In an illustration of the ripple effect of the economic slowdown on chemicals, Methanex says it will idle methanol plants in Chile and Trinidad at the beginning of April.

“We anticipate that methanol demand could be impacted in the second quarter of 2020 as there has been a substantial reduction in manufacturing activity in countries that have had significant outbreaks of COVID-19,” Methanex CEO John Floren says in a statement. China is a massive importer of methanol for chemical and fuel production.

Chile’s SQM says it has so far lost 2,000 metric tons of lithium chemical sales to China.

Moody’s Investors Service forecasts only 1% economic growth for advanced economies in 2020. It doesn’t expect chemicals and pharmaceuticals to be as impacted by COVID-19 as quarantine-vulnerable industries like airlines and tourism.

“Our baseline scenario assumes a normalization of economic activity in the second half of the year,” Moody’s says in a report. “The ability of some companies to withstand the effects of the virus will depend on duration.”

Due to plummeting demand, IHS Markit expects a global oil surplus of between 800 million and 1.3 billion barrels in 2020. This is “the most extreme global oil supply surplus ever recorded,” the consulting firm says.

US oil production, IHS warns, could decline by 2–4 million barrels per day over the next 18 months.

Adjusting to lower oil prices, South Africa’s Sasol says it want to raise $6 billion this year through assets disposals and other measures. This includes finding a partner to buy into its new $12 billion petrochemical complex in Lake Charles, Louisiana. “Active discussions” with potential partners are already under way, the company says.

ExxonMobil says it is targeting capital and operating cost reductions, but without specifics. The company is building a $10 billion ethylene cracker joint venture with Sabic in Texas.