LONDON (ICIS)–The extent to which coronavirus
restrictions globally continue to affect
chemicals supply chains will determine the
short-term impact on the sector.
The virus has not spread uniformly but the
clampdown in Italy illustrates the measures
that might be needed to help control the
disease.
China’s back-to-work drive is taking longer
than had been expected and the impact on
logistics is clearly the most significant
factor affecting both chemicals supply and
demand. Global shipping and regional multimodal
supply chains are having to absorb and deal
effectively with, first, the knock-on impact of
the hopefully successful containment of the
virus outbreak in China and. second, local
containment measures.
ICIS has reported today that
most manufacturing plants in Italy are still
operating – they are still consuming natural
gas. Deliveries of aromatics to major plants in
northern Italy were unaffected on Tuesday.
Nylon-based engineering plastics producer DOMO
said that its supply chain had thus far been
unaffected by the lockdown.
“The new rules issued by the Italian government
do not affect the free movement of goods from
and to Italy and will therefore not affect our
activities,” it said. “All other DOMO
facilities around the world are fully
operational and we are implementing the
measures needed to grant our business
continuity.”
Companies will strive for business continuity
while working within whatever free movement
restrictions are imposed by national
governments. These could be implemented within
days in countries in Europe where public
concern is mounting because of the spread of
the coronavirus.
The economic impact of virus containment is
likely to be significant and should not be
underestimated. The Bank of England stepped in
smartly on Wednesday, reducing interest rates
significantly and introducing a scheme to help
banks introduce more credit into the economy to
underpin the corporate sector.
“Although the magnitude of the economic shock
from Covid-19 is highly uncertain, activity is
likely to weaken materially in the UK over the
coming months,” it said. “Temporary, but
significant, disruptions to supply chains and
weaker activity could challenge cash flows and
increase demand for short-term credit from
households and for working capital from
companies. Such issues are likely to be most
acute for smaller businesses. This economic
shock will affect both demand and supply in the
economy.”
The UK chancellor presented his first budget on
Wednesday. Rishi Sunak introduced a £30bn
package of measures to support the health
service, individuals and small businesses.
Working effectively within restricted
conditions is likely to prove to be extremely
difficult for chemical firms, particularly as
demand from downstream sectors and end use
markets are affected.
This is not 2008, and widespread chemical
production plant closures are not yet foreseen
in the face of the closure of downstream
demand. But Deutsche Bank on Wednesday voiced
its concerns that the spike in deaths from the
virus it expects in the US, UK and Germany will
continue to fuel local stock market volatility.
But added that currently its longer term
projects “aren’t as dire as many fear”.
“We are modelling 301,000 cases in the US by
June 1, before growth should slow due to the
warmer temperatures. To put that in
perspective, in the 2019-2020 flu season there
were 245,000 positive flu tests and 4,000
confirmed flu deaths.”
It warned, however, that among many caveats
with its projections is that they can increase
“by multiples” depending on what happens within
Italy, Iran and South Korea.
The mortality rate associated with the virus
appears to be 3.4% which is high compared with
the flu mortality rate this season of 1% but
the bank suggested that this will “decline
dramatically as more patients are tested and
the mild cases are brought into that
calculation”.
