As they scramble to shore up supplies, small firms brace for a recession

When supply from China of a raw material needed to support Grignard chemistry hit a logistical snag at Optima Chemical last month, Gene Williams, president of the company, plugged into his network. Williams found a US company willing to produce the chemical, which it had not previously manufactured, for Douglas, Georgia-based Optima.

Meanwhile, Boron Specialties was having trouble sourcing tetrahydrofuran from its usual distributor and had no luck with a second one. Boron finally connected with a third that could deliver, President Beth Bosley recalls. Hoping to head off similar difficulties with a chlorosilane it uses to make a chemical for the US Department of Defense, Boron began manufacturing the chlorosilane at its plant in Ambridge, Pennsylvania.

The anecdotes are lining up from small specialty chemical firms that are scrambling to secure key raw materials dislocated by the coronavirus pandemic. At the same time, business is starting to slow, leaders of these firms say, and the prospect of a recession looms.

At Optima, the collapse in the price of oil is being felt, according to Williams. “A portion of my business that goes into catalyst production moves into that arena,” he says. “And everyone is uncertain about what the long-term implications are going to be.”

Williams is also concerned about downtime in process development, given travel restrictions that preclude customers working in Optima’s labs and plants. “There are two major development projects now on hold,” he says. “We have set a timeline whereby, if travel restrictions aren’t lifted, we are going to proceed anyway as best we can. We have had equipment prepped and ready to go, just sitting and waiting.”

While executives agree that the coming months are shrouded in uncertainty, some markets will fare better than others. Companies are accentuating the positive and seeking growth in parts of their businesses to offset losses elsewhere.

“We have a couple of customers who order regularly, like once a month, and we haven’t heard from them since February,” Bosley says. “We are a bit worried because the orders are not being booked now for the second half, which we would ordinarily see by now. We luckily have Department of Defense contracts that are not going away.”

Nation Ford Chemical, in Fort Mill, South Carolina, is dealing with a severe slowdown in the aviation market, for which it makes a secondary amine antioxidant used in lubricants. Similarly, the white paper market, to which Nation Ford markets a brightener, has fallen off a cliff. “As you might expect, people are using less paper now,” President Jay Dickson says, “not only because of the digital age, but because a lot of offices are closed.”

Otherwise the company has remained resilient so far. “Most of our stuff is pretty high technology and not so dependent on the economy,” Dickson says. “But I think we are going to start entering unknown territory this summer.”

Strem Chemicals, based in Newburyport, Massachusetts, is dealing with a virtual halt in a key market. “We are primarily known for manufacturing, selling, and distributing specialty chemicals for academic research,” CEO Ephraim Honig says. “But fortunately, we serve other segments, including pharmaceuticals. If our business was dependent entirely on academic research, we would be in trouble. Academic research is shut down.”

In addition to manufacturing drug intermediates and active ingredients, Strem makes specialty chemicals for markets including microelectronics.

Strem has good raw material inventories, Honig says, and he doesn’t expect interruptions, given that the company is not heavily reliant on China or India. He is optimistic that academic labs will reopen this summer for graduate-level research and that universities will be back for the fall semester.

Regis Technologies, a small contract manufacturer of active pharmaceutical ingredients, has not seen a significant downturn, says Louis Glunz, CEO of the Morton Grove, Illinois-based firm. Two projects were delayed, he says, when drug developers couldn’t recruit patients for clinical trials. On the other hand, Regis is bidding to manufacture two therapies for COVID-19. “They wanted bids at all speed,” Glunz says.

Kate Hampford Donahue, CEO of Hampford Research in Stratford, Connecticut, says she fears the worst is yet to come. “We ended up having a big March because everyone wanted to push their shipments up,” she says. “April definitely softened. It’s down the road at May, June, July that I’m looking cautiously… worried.”

A recession seems inevitable, Donahue says. “We will have to see if it plays out like the last recession did, where we were insulated to a certain degree, but not entirely, by the markets we are in. In electronics we got hammered, but personal care was buoyed. And people were still getting their teeth fixed back then.” This time, sales to the dental market have plummeted.

None of the companies contacted by C&EN have laid off or furloughed workers, nor have they experienced any employees testing positive for the novel coronavirus. All have applied for support from the US government’s Paycheck Protection Program, though only Strem, Hampford, and Optima received partial payments before first-round funds ran out. And all have a sense that the specialty chemical sector is heading into uncharted seas.

“I have been through a lot in my career, but this is like nothing else,” Donahue says. Maintaining morale in a workforce divided between those working at home and those at the plant and in the lab is just one of the management challenges, she says. “This is unprecedented, trying to keep everybody’s thoughts in a positive direction when we totally don’t know how this is going to unfold.”