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Economy

Coronavirus hits Europe

Chemical makers brace for a slowdown on the continent

by Alex Scott
March 12, 2020 | APPEARED IN VOLUME 98, ISSUE 10

 

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Credit: Newscom
COVID-19 has brought Italy to a standstill and emptied the streets.

The economic impact of the coronavirus—SARS-CoV-2—is shifting from China to Europe and beyond. European chemical makers continue to manufacture at close to normal levels, although cracks in the supply chain are emerging. In China, the impact appears to be dissipating. But companies across the industry are starting to acknowledge the financial toll the virus will take.

Italy is currently the European country most affected by COVID-19, the disease caused by the virus. As of March 11, the country had more than 12,000 cases, with 897 deaths, up from 463 just 2 days earlier. Among other measures, nationwide travel restrictions are in place until April 3 at the earliest.

C&EN has made this story and all of its coverage of the coronavirus epidemic freely available during the outbreak to keep the public informed. To support our journalism, become a member of ACS or sign up for C&EN's weekly newsletter.

Major economic repercussions are likely coming. But even in Italy, chemical companies say they continue to run manufacturing plants. Versalis, one of Italy’s largest chemical producers, told C&EN on March 11 that all of its facilities in Italy are operating as normal.

Federchimica, Italy’s leading chemical industry association, says the day-to-day picture is changing so quickly that it is unable to give a clear idea of how the sector is coping at this time. Cefic, a European chemical industry association, is taking the same position.

In Germany, Evonik Industries has declared force majeure for its ThreAmino brand of L-threonine, an amino acid used in animal feed. The firm says a contract supplier of the amino acid, which it won’t name, had to stop production and also had issues shipping product to Evonik. “Regrettably, we are facing a supply shortage for ThreAmino,” Emmanuel Auer, head of Evonik’s animal nutrition business, says in a statement.

Bayer says its production facilities in the countries most affected by the virus “are working largely without problems.” As of Feb. 24, its employees in China have returned to their offices at most locations. The company emphasizes that it has sufficient pharmaceutical production to ensure that patient supply is not affected.

Bayer’s Garbagnate, Italy, drug manufacturing site continues to operate, albeit with precautionary measures aimed at minimizing spreading COVID-19 infection among staff. The 600 or so employees in the firm’s Italian headquarters in Milan are currently working from home.

BASF’s facilities across Europe—including its 13 sites in Italy—also continue to operate as usual, the firm told C&EN on March 11. “We are evaluating the situation on a daily basis,” it says.

But the coronavirus will take a toll on the industry’s finances. The German industry association, VCI, has downgraded its outlook for German chemical production this year from marginal growth to a decline of 1.5%.

This week, a number of chemical companies presenting at the J.P. Morgan Industrials Conference—which became a virtual event due to the coronavirus—gave their most up-to-date assessments of the pandemic. Finances are being hit but, in a glimmer of hope, conditions are improving in China.

“In China we’re returned to just about full rates in our compounding facilities,” said Bob Patel, CEO of LyondellBasell Industries. “What we hear from our people in Asia, and especially in China, is that business is starting to resume back to normal.”

Howard Ungerleider, chief financial officer of Dow, said he is seeing signs of activity return in China. “The vast majority of our plants in China are running; a few are still running at reduced rates to balance with demand and logistics limitations,” he said.

Ungerleider estimates that the company will take a first-quarter hit of $400 million in revenues and $100 million in profits in China. The slowdown in the rest of the world will likely spell another $100-million impact on profits, he added.

At its annual results conference, Solvay said it was able to restart all of its plants in China as of Feb. 26 after a government-enforced shutdown. The company anticipates the shutdowns will reduce its 2020 earnings by $28 million.

Lanxess expects first-quarter earnings to be clipped by more than $20 million due to production shutdowns and supply-chain disruptions in China, as well as weaker global customer demand. For the year, the impact could be between $50 million and $100 million, depending on how the situation evolves this summer, the firm says.

Not surprisingly, the coronavirus led to a financial rout this week. From March 4–11, the Dow Jones Industrial average lost 13.5%, erasing a year’s worth of gains.

Over the same period, oil prices got clobbered, dropping 30% to about $33 per barrel. The consulting firm IHS Markit predicts that the first quarter of 2020 will see the largest decline of oil demand in history—3.8 million barrels per day lower than it was a year ago. During the financial crisis in 2009, oil demand fell by 3.6 million barrels per day.

“It now appears likely that oil demand will be less than in 2019, even if there is a recovery in the second half of 2020,” the consulting firm says.

Lower oil prices are a complication for chemical producers. They might reduce costs, particularly for firms in Asia and Europe that rely on oil as a raw material. But they also can depress prices for chemicals.

“Lower oil prices and the spread of coronavirus places additional uncertainty over second-half performance across the chemicals sector, reducing the likelihood of a strong post-virus rebound in 2020,” says a report from Moody’s Investor Service.

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