“Specialty chemicals have a critical role in ensuring public health and safety, as well as national security. What is the impact of COVID-19 on the specialty chemicals sector, what are the recovery strategies, and what lessons can the GCC specialized chemicals business learn?”

Apart from the human toll, the coronavirus pandemic is having an impact on the global economy, as countries implement lockdown measures and restrict population movement. Industrial activities have been suspended, international travel has been suspended, and only critical enterprises such as food and medications are permitted to operate. Almost all industrial sectors are suffering as a result of these measures, with manufacturers experiencing supply chain failures and labor shortages.

There is no exception in the chemical sector. In March, global chemical production fell by roughly 3%. Raw material and labor shortages, as well as government-mandated factory shutdowns, are the causes of this drop. Since February 2020, the specialized chemicals sector has experienced disruptions and production losses, as has the rest of the chemical industry.

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Major Effects of the Crisis

1. Supply disruptions and demand shocks have accelerated oversupply and imbalances: The chemical industry has rushed into an oversupply crisis that was already developing before Covid. The automotive, transportation, and consumer products industries have been affected the hardest, with chemical demand plummeting by up to 30%.

2. Shifts in chemical feedstock pricing have shifted the worldwide competitive order.

The price of crude oil fell to its lowest level since the Gulf War began in 1991 last month. The price of chemicals feedstocks and the worldwide competitive order shifted dramatically as a result of this decline. The United States, which is losing its cost edge due to shale gas, and the Middle East are the hardest hit. Lower input prices are compensated by lower output prices, which has conflicting implications on Asia, with China being the world's largest importer of crude oil.

3. Supply chain deglobalization

Chemical businesses have begun to (partially) shift or ramp up manufacturing of vital chemicals supplies and medical items closer to end customers in reaction to large supply chain disruptions (for example, pharmaceutical active ingredients, disinfectant gels, masks). Supply networks were already being impacted by trade tensions and structural sector developments.

4. A push for a contract in a market that can often be dormant

The chemicals M&A market has come to a near standstill, which is a significant change from recent years. However, with prices at peak levels and a lowered demand picture prior to the pandemic, this catastrophe may deliver a boost to a market that could otherwise have stalled.

Major Market Highlights:

Capital Paints LLC, a UAE-based thermosetting powder coatings producer, has been acquired by Xalta, a leading global supplier of liquid and powder coatings.
Dexmet Corporation, a provider of specialty materials for surfaces in aerospace, automotive, and industrial applications, was acquired by PPG.
ArrMaz, a global pioneer in specialty surfactants for crop nutrition, mining, and infrastructure applications, was acquired by Arkema.
Conclusion: A blueprint for the future

Executives should keep an eye on wider trends impacting customer preferences and the broader market environment in order to focus on new growth prospects and extract more value from present resources and assets. The goal should not be to foresee the future, but rather to keep track of two essential aspects in this fast-changing situation: the pandemic's economic impact and changes in consumer tastes and behavior.

While metrics such as new infection rates and testing results can be used to track the pandemic's progress, one essential factor to keep an eye on will be the restrictions put in place to stem the spread, as well as the amount to which these policies stifle or postpone economic openings in certain locations. As neighborhoods reopened, traffic immediately rose, resulting in a spike in gasoline consumption. Furthermore, consumer spending has partially returned, providing some respite to the consumer sector, and new unemployment claims have decreased as people return to work. These are encouraging signs, but continued success will be contingent on the virus's containment.

Similarly, leaders should monitor not only the innate changes in consumer behavior that were already afoot prior to the outbreak but also more recent changes in response to the pandemic, such as growing demands for personal protective equipment (PPE) and health- and safety-related products. In addition, consumption patterns for contactless exchanges and innovative ways to obtain services will continue to grow. Companies who can be early adopters in this new terrain and embrace an "application-focused" approach would certainly gain in the long run.

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