We use cookies
to help provide you with a good experience on our website. By continuing to browse the website, you are agreeing to our use of cookies.

Coronavirus and the petrochemicals industry – what might the recovery look like?


Coronavirus and the petrochemicals industry – what might the recovery look like?

Frozen economic activity and volatile feedstock pricing will both have an immediate and dramatic impact. Wood Mackenzie prepared a complimentary report on how coronavirus hits the petrochemicals industry with two major shockwaves.

Two immediate major shockwaves are linked to economic activity and feedstock pricing. Patrick Kirby, Principal Analyst, EMEARC Olefins and Matthew Chadwick, Vice President, Global Head of Petrochemicals, look at the early implications.

Shockwave 1: a sudden freeze in economic activity

The lockdown measures in place around the world are unprecedented in modern history. The one playbook the industry has to go by is the 2008/2009 global economic crisis when chemical demand growth recovered rapidly following a sharp dip in global economic activity. That recovery was supported by global stimulus packages, particularly from China. To date, similar measures in this crisis have provided less momentum or reassurance.

Wood Mackenzie

Before the coronavirus outbreak, we had two underpinning base case views for petrochemical demand.

  1. Long-term demand growth for petrochemicals is robust. Feedstocks are one of the fastest-growing parts of the oil barrel, so oil-related companies continue investing.
  2. Plastics circularity will grow in scope and scale to become an increasingly integral part of the industry. Chemical companies are increasingly active in the space.

Longer term, we expect these trends to remain. However, the crisis will slow investment and shift focus towards cash reservation and capex discipline. The evolution of plastics circularity is also likely to slip down the pecking order. Meanwhile, a low oil price makes recycling economics tougher.

The impact will differ across chemical value chains and end-use segments. Packaging, sanitary and medical polymer applications are seeing a short-term lift. This is due to stockpiling, a boom in delivery services, and the high healthcare sector activity. Other major polymer-consuming sectors, including automotive and construction, have taken a hard hit.

Shockwave 2: volatile feedstock pricing following the oil price crash

Refined product prices have followed crude, amplified by the sharp drop in mobility and transportation fuel consumption. As a key connection to base olefins and aromatics manufacturers, refining industry trends can dramatically disrupt petrochemicals unit operations down multiple value chains.

In the medium term, new petrochemical capacity additions are likely to be lower – good news for an industry entering crisis. Existing projects under construction will be postponed by labour restrictions and decision-making on pre-FID projects will slip, perhaps indefinitely. Frustratingly, in the short term, labour restrictions are also delaying planned maintenance, meaning more supply will stay online. But this could be countered in the coming weeks by difficulties in recovering from unplanned interruptions.

How will the chemicals industry respond to the crisis?

Polymer consumption patterns are in disarray. Plunging oil prices are hitting feedstock pricing and profitability. The industry – like so many others – faces significant uncertainty. So, what’s the likely response?

Right now, the focus is mainly on the human aspects of the crisis, in addition to managing immediate operational disruption. But crisis management only extends so far. The industry must ask itself how to set up for success in a decade that looks very different to the last.

Read more and download a complimentary copy of the report

Relevant news

How will the EU plastics levy change the flexible packaging market?
Wood Mackenzie analysts suggest their opinion on the impact the new levy will have across EU nations.
Can chemical recycling make plastic more sustainable?
Wood Mackenzie published an article on chemicals recycling - its pros and cons. Globuc here republishes the highlights from this article.
Why polyolefins
are the polymers
to watch
How has the coronavirus pandemic altered the PE and PP markets? Wood Mackenzie published an article researching trends in the polyolefins market.
Go Net Zero Virtual Talks: On renewables returns and O&G
Presentation by Valentina Kretzschmar, VP Corporate Research, Wood Mackenzie
The O&G sector’s energy transition: leaders and laggards
Video of the 1st episode of the Go Net Zero Energy talks with Valentina Kretzschmar Vice President - Corporate Research, Wood Mackenzie. 15th Oct 2020
Outlook for circularity in the post-COVID world
A presentation by Guy Bailey, Head of Intermediates and Applications, Wood Mackenzie at Go Circular Petrochemicals. 9 Sep 2020