Over the last 6 months the chemical industry has been hit with a few major challenges not least the outbreak of COVID-19.
Demand destruction has accelerated the chemical industry into an oversupply situation which was already looming pre-covid. The automotive, transportation and consumer products sectors are among the hardest hit end-markets, with demand for chemicals falling by up to 30%. On the other hand, demand for pharmaceuticals, food additives, and disinfectants is peaking, and chemical companies exposed to these sectors are reporting record outbound volumes.
What does this mean for Procurement?
The COVID-19 pandemic has stretched even the very best procurement leaders. Never have they been asked to play such a leading role in safeguarding their company’s financial viability and protecting a severely disrupted supply base, all while pivoting to a fundamentally different way of working. As they've been asked to Navigate the present supply-side storm and plot a course for reshaping their organizations for the post-crisis world.
The initial response in the wake of the pandemic was concentrating on managing upstream supply chains to minimise any disruption to the tier 1 and tier 2 suppliers. Across several businesses it has been noted that the challenges have come from short term sourcing decisions aimed at minimising disruption. Reinforcing contingencies plans have been too small scale across some of the leading chemical production houses that have not been prepared for multi country failure.
Future proofing supply chains has and will continue to be a subject of conversation in the industry as this pandemic has highlighted some major risks in resilience.
Based on the category, each type of chemical witnessed a decline in production. However, the production of synthetic rubber and specialty chemicals, such as paints and coatings, felt the majority of the impact. Demand for paints and coating decreased due to construction activities being halted and the demand from automotive and other industrial sectors is low. Restrictions on travel have had a direct impact on demand for petrochemicals, including butadiene, synthetic rubber and acrylonitrile-butadiene-styrene, which are largely used in tires.
As people have been travelling less and with countries closing their borders, the demand from the transportation and automotive industries have declined, which has led to an even more substantial reduction in demand for tires, which in turn has a huge impact on the demand for synthetic rubber.