Chemical companies preview second-quarter COVID-19 impact

Chemical companies navigating the economic impact of COVID-19 will be reporting second-quarter sales and earnings in the coming weeks, and early indications are that the figures won’t be pretty. Economists are expecting a global rebound in the third quarter, but chemical industry watchers say some markets, namely automotive and aerospace, will continue to be troubled, possibly for years.

The chemical makers BASF and Covestro and the paint and coatings firm AkzoNobel have given investors a preview of the magnitude of the impact that COVID-19 slowdowns had on second-quarter sales and earnings. All three say businesses serving automotive manufacturing had a rough season, while some other major segments kept pace with last year.

Lower demand from the auto industry hurt BASF’s sales of materials, surface technologies, and basic and performance chemicals. Overall, the German company expects to report a sales drop of 12.4% to $14.5 billion compared to the second quarter of 2019. The company will report full results on July 29.

BASF estimates its overall earnings before special items were sharply lower at $258 million compared with over $1.1 billion in the prior-year quarter, though above analyst expectations. The company’s finances were also hit by plummeting demand for oil and gas; it will take an impairment worth $912 million for its ownership stake in the oil company Wintershall Dea.

In contrast, BASF notes, its nutrition and care businesses had stronger earnings compared with last year, and agriculture earnings were level.

Covestro says it expects second-quarter earnings before taxes and interest of $141 million, beating analyst forecasts by about $50 million. But the result falls far short of last year’s $523 million in earnings. The company makes polyurethanes and polycarbonates used in auto manufacturing and consumer products such as cosmetics and sports equipment. Overall sales dropped by roughly one-third from last year.

AkzoNobel saw divergent demand trends for paints and coatings. Sales of performance coatings for auto and aerospace manufacturing stayed well below last year, though demand improved over the course of the quarter. In contrast, demand for decorative paints in Europe and China rebounded compared to the first quarter. Overall, the company saw 19% lower sales and a 22% reduction in adjusted operating income during the quarter.

Although the numbers are grim, data from the Organization for Economic Cooperation and Development (OECD) suggest the chemical sector has been resilient compared with the economy overall: gross domestic product in the US and the European Union shrank 41% and 49%, respectively, in the second quarter. OECD projects growth will return in the third quarter.

In the US, the chemical industry will continue to face lagging sales to the auto industry, but companies supplying pharmaceuticals, nutrition, and hygiene raw materials will benefit from upward trends, according to a midyear outlook by Deloitte. The consulting firm estimates full-year US chemical industry sales will be 14–15% lower than last year.

“The effects of the COVID-19 pandemic will likely echo well beyond 2020, and the crisis provides an opportunity for companies to learn and adapt,” Duane Dickson, chemical leader for Deloitte, wrote in the report.

Socma, a US trade group for fine and specialty chemical companies, asked its members about their longer-term outlook. It found 92% of surveyed companies expect revenue to grow over the next 3 years, thanks to rising demand for performance materials, agriculture chemicals, and pharmaceutical ingredients.