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Coronavirus Stings Chemicals as Global Production Tumbles
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Global chemical production declined sharply in January on a significant drop in China due to the impact of the deadly coronavirus outbreak, according to the lastest monthly report from the American Chemistry Council (ACC). The decline reversed gains in output in both November and December.
Production Slumps in January
The Washington, DC-based chemical industry trade group said that the Global Chemical Production Regional Index (CPRI) fell 1% in January on a monthly comparison basis.
The Global CPRI, which is measured using a three-month moving average, measures chemical production volumes for 33 major nations, sub-regions and regions. It is comparable to the Federal Reserve Board (FRB) production indices.
By regions, output dropped in North America (down 0.1%), Europe (down 0.8%) and Asia-Pacific (down 1.6%). Production in China tumbled 2.1% for the month, hurt by the virus outbreak. However, production rose in Latin America (up 0.1%), the Former Soviet Union (up 0.6%), and Africa and the Middle East (up 0.2%).
With respect to segments, declines were witnessed in specialty chemicals, agricultural chemicals and consumer products in January while basic chemicals saw a modest gain.
The ACC also noted that the Global CPRI went up 0.9% year over year on a three-month moving average basis. Global capacity was up 0.3% for the reported month and also increased 3.4% on a year-over-year basis. Capacity utilization for the global chemical industry slipped 1.1 percentage points to 81.3% in January, down from 83.2% for the same month a year ago.
Coronavirus Puts a Crimp on Chemicals
The chemical industry, which is among the industries that have been badly hit by steep trade tariffs, faces fresh challenges from the coronavirus epidemic which has been spreading rapidly outside China of late. The death toll of the outbreak has already crossed 3,300, with more than 98,000 people infected globally.
The contagion is taking a heavy toll on China’s economy. It has crippled the country’s manufacturing and service sectors as indicated by recent data points. China’s factory activity slumped a record low in February as the country grappled with coronavirus. The official manufacturing purchasing managers’ index (PMI) tumbled to 35.7 for the month from 50.0 in January. The country’s services sector also dropped to all-time low in February amid the outbreak. The Caixin/Markit services PMI dropped to 26.5 in February from 51.8 in January as new orders fell sharply and demand contracted due to the virus crisis. A reading lower than 50 indicates a contraction in activity.
The weakness in China’s economy will be heavily felt in the chemical sector as the country is a top consumer of chemicals. Slowdown due to coronavirus is expected to lead to a slump in demand of chemicals including ethylene, polyethylene and polyvinyl chloride in China, at least in the first quarter of 2020.
As such, chemical makers are expected to face a short-term demand blow in China as coronavirus-induced shutdowns hurt industrial activities in the country. Business activities have ground to a halt across the country as millions were forced to stay at home amid stringent travel restrictions imposed by Beijing.
Notably, the epidemic has slowed down activities in the construction space (a key chemical end-use market) in China due to quarantine restrictions on workers who returned from the Chinese New Year holidays. The automotive industry, another major end-market for chemicals, is also getting hammered by the outbreak. Coronavirus has further weakened China’s beleaguered automobile sector. New car sales in the country tumbled 80% last month, per China Passenger Car Association, as the epidemic impeded new purchases.
Chemical makers including Celanese Corporation (CE - Free Report) , Eastman Chemical Company (EMN - Free Report) , Westlake Chemical Corporation (WLK - Free Report) and Huntsman Corporation (HUN - Free Report) echoed concerns of a potential slowdown in demand in China during their December quarter earnings call.
Meanwhile, the supply disruption in China is likely impact the availability of raw material for the chemical industry at least through the first half of 2020. The closure of a large swath of factories across China to contain the spread of the virus has threatened to disrupt the global supply chain.
U.S. chemical makers, in particular, are expected to face the heat as they procure several chemicals critical to their production processes from China that are not available elsewhere. Shutdowns due to the contagion are likely affect the delivery of key raw materials used in chemical production, leading to a spike in costs of these inputs. The disruptions are also expected to significantly hurt global chemical output in 2020.
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Coronavirus Stings Chemicals as Global Production Tumbles
Global chemical production declined sharply in January on a significant drop in China due to the impact of the deadly coronavirus outbreak, according to the lastest monthly report from the American Chemistry Council (ACC). The decline reversed gains in output in both November and December.
Production Slumps in January
The Washington, DC-based chemical industry trade group said that the Global Chemical Production Regional Index (CPRI) fell 1% in January on a monthly comparison basis.
The Global CPRI, which is measured using a three-month moving average, measures chemical production volumes for 33 major nations, sub-regions and regions. It is comparable to the Federal Reserve Board (FRB) production indices.
By regions, output dropped in North America (down 0.1%), Europe (down 0.8%) and Asia-Pacific (down 1.6%). Production in China tumbled 2.1% for the month, hurt by the virus outbreak. However, production rose in Latin America (up 0.1%), the Former Soviet Union (up 0.6%), and Africa and the Middle East (up 0.2%).
With respect to segments, declines were witnessed in specialty chemicals, agricultural chemicals and consumer products in January while basic chemicals saw a modest gain.
The ACC also noted that the Global CPRI went up 0.9% year over year on a three-month moving average basis. Global capacity was up 0.3% for the reported month and also increased 3.4% on a year-over-year basis. Capacity utilization for the global chemical industry slipped 1.1 percentage points to 81.3% in January, down from 83.2% for the same month a year ago.
Coronavirus Puts a Crimp on Chemicals
The chemical industry, which is among the industries that have been badly hit by steep trade tariffs, faces fresh challenges from the coronavirus epidemic which has been spreading rapidly outside China of late. The death toll of the outbreak has already crossed 3,300, with more than 98,000 people infected globally.
The contagion is taking a heavy toll on China’s economy. It has crippled the country’s manufacturing and service sectors as indicated by recent data points. China’s factory activity slumped a record low in February as the country grappled with coronavirus. The official manufacturing purchasing managers’ index (PMI) tumbled to 35.7 for the month from 50.0 in January. The country’s services sector also dropped to all-time low in February amid the outbreak. The Caixin/Markit services PMI dropped to 26.5 in February from 51.8 in January as new orders fell sharply and demand contracted due to the virus crisis. A reading lower than 50 indicates a contraction in activity.
The weakness in China’s economy will be heavily felt in the chemical sector as the country is a top consumer of chemicals. Slowdown due to coronavirus is expected to lead to a slump in demand of chemicals including ethylene, polyethylene and polyvinyl chloride in China, at least in the first quarter of 2020.
As such, chemical makers are expected to face a short-term demand blow in China as coronavirus-induced shutdowns hurt industrial activities in the country. Business activities have ground to a halt across the country as millions were forced to stay at home amid stringent travel restrictions imposed by Beijing.
Notably, the epidemic has slowed down activities in the construction space (a key chemical end-use market) in China due to quarantine restrictions on workers who returned from the Chinese New Year holidays. The automotive industry, another major end-market for chemicals, is also getting hammered by the outbreak. Coronavirus has further weakened China’s beleaguered automobile sector. New car sales in the country tumbled 80% last month, per China Passenger Car Association, as the epidemic impeded new purchases.
Chemical makers including Celanese Corporation (CE - Free Report) , Eastman Chemical Company (EMN - Free Report) , Westlake Chemical Corporation (WLK - Free Report) and Huntsman Corporation (HUN - Free Report) echoed concerns of a potential slowdown in demand in China during their December quarter earnings call.
Meanwhile, the supply disruption in China is likely impact the availability of raw material for the chemical industry at least through the first half of 2020. The closure of a large swath of factories across China to contain the spread of the virus has threatened to disrupt the global supply chain.
U.S. chemical makers, in particular, are expected to face the heat as they procure several chemicals critical to their production processes from China that are not available elsewhere. Shutdowns due to the contagion are likely affect the delivery of key raw materials used in chemical production, leading to a spike in costs of these inputs. The disruptions are also expected to significantly hurt global chemical output in 2020.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>