CHEMICALS

The Covid-19 pandemic, and the induced industrial plant lockdowns as a result, had an impact on demand for chemicals, causing the industry’s global sales to drop by -4% last year. The industry faced various challenges ranging from disruptions in major end markets such as automotive or construction to uncertainties created by trade disputes between the US and China to the stiffer sustainability regulations tied to the evolution of consumer preferences. The good news is that the sector as a whole has started surfing on a new industrial momentum alongside the ongoing economic recovery due to the grand reopening. Therefore we expect global chemical sales (USD denominated) to go up by around +15% in 2021 compared to 2020.

However, the recovery reveals disparities across regions, with two different paces between developed and emerging countries. Moreover, a close look at the chemicals subsector spectrum reveals that some segments may recover faster than others. Downstream specialties such as soaps and detergents are benefiting from strong demand for sanitizers, while highly profitable cosmetics and paints - including coatings - have had to face a decline in household consumption and the closure of some car factories, respectively. Yet the quick resumption of automotive production and the surprising resilience of construction have contributed to the recovery in paints and coatings output, as well as a not-that-bad performance in plastic materials. The continued tariffs on US-China chemicals trade and downstream products have also weighed down the American chemicals sector despite the signing of the US-China Phase 1 trade deal in early 2020. The sector is also under the spotlight of international and local regulators concerning the use of plastics, hazardous waste and users' health & safety.

As the industry moves into 2021, the outlook for Emerging Markets appears to be more favorable than that of developed ones. In China, for instance, domestic demand and the global trade resumption strongly support chemicals production, in addition to a rising middle class that boosts demand for high value-added products like cosmetics. The recovery of the American and European markets is still hampered by the sanitary conditions, but better manufacturing output, strong car registration figures, a bright electronics outlook and the resiliency of construction are promising a prompt rebound in the two regions in coming quarters.

Surprisingly, the pandemic has also brought further momentum to the sector. Chemicals companies are now exploring more digital sales channels and new means to reach their customers, especially in cosmetics. The crisis has shifted companies’ strategies too, encouraging them to divest from non-core assets to raise cash during the downturn. Going forward, chemical players should keep a close eye on the sectoral reconfiguration to mitigate the regulatory risks and accommodate their offerings to the customers’ new preferences.