Chemical companies forecast COVID-19 impact in the second quarter

Chemical companies responding to the economic impact of covid-19 will report second quarter sales and earnings in the coming weeks, with preliminary signs that these figures will not be very good. Economists expect the global economy to rebound in the third quarter, but chemical industry observers say some markets, such as automobiles and aerospace, will continue to be in trouble, possibly for several years.

Chemical manufacturers BASF (BASF), C Westrm (Covestro), and paint and coatings company AKZO NOBEL (AkzoNobel) estimated the impact of COVID-19’s slowdown on sales and earnings in the second quarter. All three companies said that the business serving the automobile manufacturing had experienced a difficult season, while some other major businesses were flat with last year.

The decline in demand in the automotive industry has affected BASF’s sales of materials, surface technology, basic chemicals and performance chemicals. Overall, the German company expects second quarter sales to fall 12.4% from the second quarter of 2019 to $14.5 billion. The company will report full results on July 29.

BASF estimates that total revenue excluding special items dropped sharply to $258 million, down from $1.1 billion in the same period last year, but higher than analysts expected. The company’s financial position has also been hit by the collapse in oil and gas demand; its stake in Wintershall DEA will lose $912 million.

BASF, by contrast, noted that its nutrition and care business was more profitable than last year, with agricultural revenues flat.

Covestro expects pre tax profit of $141 million in the second quarter, about $50 million higher than analysts’ expectations. But the result is far from last year’s revenue of $523 million. The company produces polyurethane and polycarbonate for automotive manufacturing and consumer products such as cosmetics and sports equipment. Overall sales are down about a third from last year.

AkzoNobel’s demand for paints and coatings varies. Sales of performance coatings for automotive and aerospace manufacturing are still well below last year, although demand improved in the quarter. In contrast, demand for decorative coatings in Europe and China rebounded from the first quarter. Overall, the company’s sales fell 19% in the quarter and its adjusted operating income fell 22%.

Despite the dismal figures, the organization for economic cooperation and development (OECD) data show that the chemical industry has performed strongly compared with the overall economy: gross domestic product in the US and the European Union fell 41% and 49% respectively in the second quarter. The OECD expects growth to resume in the third quarter.

A Deloitte mid year outlook report shows that in the US, the chemical industry will continue to face a lag in sales to the automotive industry, but companies supplying pharmaceutical, nutritional and health raw materials will benefit from the upward trend. The consulting company estimates that the annual chemical industry sales in the United States will be 14-15% lower than last year.

“The impact of the cowid-19 pandemic is likely to repeat for a long time after 2020, and this crisis provides an opportunity for chemical companies to learn and adapt,” Duane Dickson, director of chemicals at Deloitte, wrote in the report.

SOCMA, the US Trade Organization for fine and specialty chemicals enterprises, asked its members about their long-term prospects. The survey found that 92% of the enterprises surveyed expected their income to increase in the next three years due to the growing demand for performance materials, agricultural chemicals and medicinal ingredients.

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