As per the recent interim updates by the American Chemistry Council (ACC), there is significant uncertainty in the projections of the U.S. chemical industry as it analyzes the potential impacts of Covid-19 which has caused indefinite halt in the country’s manufacturing activities and muted trading. ACC projects the world trade to plummet by 10.5% this year as the pandemic brings a “perfect storm” to the global economy with U.S. experiencing the hardest blow as it reports the spread of the virus in more than 8.2 lakh people, as on Wednesday, 22nd April 2020. It is being feared that if lockdown restrictions are not eased before the end of Q2 2020, it would result in a sudden and severe collapse in global economy sliding it into the steepest recession since the 1930s.

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According to the ACC update, following factors have put an undue pressure on the U.S. chemical sector which might take a huge toll on the country’s economic growth:

1. The year started with muted trade activity as the Trump administration revised trade agreements with China.
2. Oil prices plummeted to reach a negative territory this week, putting the shale-gas producers at risk. The shale gas sector powering the U.S. chemical exports has evaporated.
3. A decline in crude oil production could increase the natural gas and natural gas liquids (NGL) prices, as if refiners induce production cuts this would mean lesser associated gas produced. This may further affect the U.S. petrochemicals sector.
ACC reports that U.S. chemical volumes are expected to fall sharply in 2020 before showing a further rise in 2021. The table shows ACC predictions regarding chemical imports and exports in the two years relying on some baseline scenarios.

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A sigh of relief for some chemical sectors

In response to the pandemic, some chemical producing sectors are witnessing a boost with strong focus on the chemicals which are being popularly used in the fight against the virus. These include synthetic materials for personal protective equipment (PPE), ingredients for cleaners and disinfectants, and plastics used in medical equipment such as ventilator machines.

Specialty chemical player Stepan has reported a sudden jump in demand for surfactants and other cleaning chemicals. Similarly, DuPont is assuming that high sales of PPE is likely to boost its first-quartearnings.

Future Risks

• ACC expects that the chemical job losses could total 28,000, or 5.1% of the workforce, in 2020. The job cuts would put a big halt on the industry’s 3-year run of job expansion. The cuts would be distributed among production, R&D, managerial & administrative roles, and overall business investments.

• The ACC report projects U.S. GDP to fall by 4.0 percent in 2020 before rising 4.0 percent in 2021. Consumer spending will decline by 4.6 percent in 2020 before rebounding 4.4 percent next year. Economy-wide business investment is expected to decline 9.7 percent in 2020 before showing 3.0 percent growth in 2021.

Note: In its release, ACC has stated the afore mentioned points by relying on a baseline scenario according to which the U.S. COVID-19-related restrictions are lifted before the end of Q2 2020. ACC also sketched a “pessimistic” scenario under which U.S. restrictions are extended till Q4 2020.

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Source: ChemAnalyst