Chemical Processing Industry Faces Short-term Demand Destruction, but Long-term Demand Intact, So Far

Written by John Egan for Industrial Info Resources (Sugar Land, Texas) --The global Chemical Processing Industry (CPI) faces a "very significant destruction of demand in the near term" due to the COVID-19 pandemic, Trey Hamblet, Industrial Info's global head of chemical processing research, said during a webinar on Wednesday. But the expected impact on project spending is less pronounced in the medium term and long-term, he said: there has been a "deterioration" in the outlook for medium-term project spending around the world, but the outlook for long-term projects "is intact, with no deterioration, so far."

About 800 people attended Industrial Info's 2020-2021 Global Chemical Industry Spending Outlook webinar.

Webinar co-host Shaheen Chohan, Industrial Info's vice president of global analytics, said the International Monetary Fund (IMF) lowered its outlook last month for gross domestic product (GDP) growth for this year. The agency projected the global economy will shrink 3% this year, compared with a projection of 3.4% growth, made prior to the COVID-19 pandemic. Advanced economies are expected to contract 6.3%, with the national economies of the U.S. (-5.9%), Germany (-7%) and France (-7.2%) pacing that group. All had been expected to experience economic growth before the COVID-19 pandemic.

The economies of the second- and third-largest economies, China and India, are expected to grow 1.2% and 1.9% this year, respectively, the IMF said, well under earlier estimates.

The IMF saw a much better 2021 global economy, predicting 5.8% economic growth. But many economists, elected officials and public-health experts are worried about a second wave of COVID-19 infections stemming from recent efforts to reopen state and national economies. Chohan said a second wave of infections could have a critical impact on economic growth projections for 2020 and 2021.

Hamblet said, "GDP is critical because the Chemical Processing Industry is very driven by consumer demand."

Hamblet said many CPI projects under construction are experiencing some delays, which will push back the anticipated completion dates. "Projects currently under construction will come online, but they may be delayed. We have not seen projects cancelled where dirt has been turned or steel has been put in the ground."

Medium-term projects, those kicking off construction after 2021, are being delayed by 12, 18 or even 24 months, he continued: "Owners have a lack of motivation to make billion-dollar commitments until demand destruction is farther back in the rear-view mirror."

Industrial Info is tracking 316 ethylene units around the world with an aggregate production capacity of about 415 billion pounds. Twenty-five new units totaling 46 billion pounds are scheduled to begin operating in 2020 or 2021. "We will see those 46 billion pounds of new capacity come online," Hamblet predicted. "Ethylene is the father figure for many other products, and investments in ethylene drive increased production of other products."

But he cautioned there is less certainty about the additional 60 ethylene units that are scheduled to begin construction this year or next. Those planned projects, many of which are scheduled to be built in China or the Middle East, have aggregate capacity of approximately 120 billion pounds of output.

For the broader chemical industry, Hamblet said global construction starts for this year have dropped from about $521 billion at the start of 2020 to an estimated $304 billion in early May, a 42% decline. Industrial Info researchers have identified $19 billion of project starts that have been affected by the COVID-19 pandemic.

"It's very normal to see a decline in project construction starts from the beginning of the year to the middle of the year," Hamblet said. "What's unusual is to see so much of that project activity move so fast."

Looking to global chemical project construction starts in 2021 and 2022, Industrial Info is tracking $526 billion worth that are scheduled to begin turning dirt during that period. That sum includes projects that have been delayed from earlier years. But only $433 billion of those projects have a medium (70% to 80% probability) or high (81% to 99% probability) likelihood of kicking off construction according to their current schedule.

Hamblet said grassroot projects and unit additions were most likely to be delayed, but that in-plant capital projects, such as retrofits and upgrades, were "showing some strengths."

Hamblet said there has been "a less pronounced impact on maintenance activities compared to capital projects." Across the entire global sector, Industrial Info is tracking about 4,700 maintenance projects valued at roughly $8 billion that are scheduled to take place this year. "There's going to be very close to $8 billion of maintenance work being done this year," he predicted. "There have been some delays, but they tend to be measured in weeks and months, not years."

But echoing a widespread caveat, Hamblet noted "there were an endless number of unknowns related to COVID-19."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.