In the medium and long term, as overseas investment banks have lowered the GDP growth rate of major global chemical markets, global demand for European chemical products has slowed or reached a certain level.
The spread of the new crown virus epidemic has weakened the already weak European chemical industry.
As of 18:00 on March 20th, Beijing time, the cumulative diagnosis of new pneumonia in Germany, France, Italy and the Netherlands was 13,957, 10995, 41035 and 2460, respectively. The output and sales of chemicals in these four countries accounted for nearly 80% of the EU in 2018.
The epidemic has affected the European chemical industry on both the supply and demand sides. On the supply side, the supply chain of many chemical companies is facing disruptions due to factory shutdowns, workers being unable to resume work, and shortages of raw materials. On the demand side, the internal demand of the European Union is already weak, and the export of the EU ’s chemical industry has continued to decline with the global fermentation of the new crown virus.
Professor Ding Chun, director of the European Studies Center of Fudan University and deputy chairman of the China European Society, said in an interview with First Financial News that many European manufacturing companies have factories in Europe and around the world. Reduce labor costs. However, once a black swan event such as the epidemic is encountered, it will affect the movement of people and goods. If you want to avoid a supply chain break, you need to look at inventory and other conditions. However, in order to reduce costs, many companies have always adopted the lowest possible inventory.
In addition, some analysts pointed out that in the medium and long term, as overseas investment banks have lowered the GDP growth rate of major global chemical market countries, global demand for European chemical products has slowed or reached a certain level.
European chemical companies may face supply chain disruptions
Since the end of February, many chemical factories in Europe have reported that employees have been diagnosed with new crown pneumonia and the factory has stopped working.
According to media reports, since the beginning of March, affected by the new crown pneumonia epidemic, the world ’s largest initiator supplier Igen Meng (IGM) has stopped working. The IGM is located in Lombardy, Italy, the worst epidemic in Europe. On February 23, the Italian government announced the blockade of 11 cities and towns in Lombardy and Veneto. Enterprises can decide whether employees work from home. As the epidemic intensified in Italy, on March 8, the Lombardy region was completely closed, and all personnel must be quarantined at home. So far, most factories in Lombardy have stopped production.
At the same time, many chemical factories in Europe have reported cases of confirmed employees. On March 8, the official website of the global chemical giant BASF Group announced that an employee at the company's headquarters in Ludwigshafen was diagnosed with new crown pneumonia. In order to control the epidemic, the BASF Group immediately stated on its social network that the company prohibits employees from traveling to high-risk areas. If any employees return from these areas due to business trips or personal reasons, they must be isolated at home for 14 days and not allowed to enter the factory office.
In addition to the shutdown of factories and the inability of personnel to work properly, European chemical companies are generally facing shortages of raw materials at the supply side. As the European epidemic continues to intensify, starting in February, most European countries have adopted strict traffic control measures, which means that some materials that need to be imported may not arrive on time.
At the end of February, Pasteur issued a notice of tight supply chains. At the same time, the BASF Group also warned that the outbreak may cause the growth rate of global chemical production to drop to its lowest level since the financial crisis.
Global demand may fall sharply
At the same time, the epidemic also weighed on the demand and export of downstream companies in the chemical industry.
In 2019, according to the European Chemical Industry Council (Cefic), EU chemical production has fallen by 1%. Germany's chemical output accounts for about one-third of the EU's total. According to the German Chemical Industry Association (VCI), Germany's chemical production in 2019 fell by 2.5%.
Cefic said that in 2019, many chemical companies in Europe experienced a decline in production capacity and net profit, one of the main reasons is the lack of domestic demand in the EU. Among them, the significant decline in the downstream industries of several important chemicals such as automobiles, electrical appliances, and electrical appliances is the main reason for weak domestic demand. The deeper background behind it is the global economic slowdown, Brexit and the deterioration of the global trade situation. VCI believes that the German industrial recession is the cause of the decline. According to data from the German Federal Statistical Office, starting from September last year, German industrial output value has fallen for four consecutive months, of which industrial output value fell by 1.7% in October.
Cefic originally placed the hopes of the European Union's chemical industry in 2020 on exports. In 2018, 29% of the EU's chemical sales revenue came from markets outside the EU, up from 20% in 2008. Asia, EU neighbors and NAFTA are the three major export markets of the EU chemical industry. Cefic's forecast at the beginning of the year is that sales within the EU will fall by 0.5%, but exports may increase by 1.5%.
However, a research report by Everbright Securities shows that the outbreak of the new crown virus has caused global demand to decline, and this trend is difficult to reverse in the short term.
This is evidenced by the sharp drop in spot prices for several chemical species in Europe. Taking methanol, an important raw material for the chemical industry, as an example, starting in mid-January, the trend of methanol in Europe has changed, and spot prices have fallen for two consecutive weeks. The price of methanol dropped from a peak of 253 euros / ton to 238 euros on February 1, with prices falling by almost 6.3%. After entering March, its price has dropped by about 30%.
In the medium and long term, the EU chemical industry and chemical prices are closely linked to the economic growth of the downstream market. Cefic believes that as overseas investment banks have lowered the GDP growth rate of the EU and its major chemical market countries, the slowdown or even contraction in demand growth in Europe and North America is almost a foregone conclusion.
