The impact of COVID-19 on plastic resin and petrochemicals markets is being measured by industry experts.
"The world is different now," analysts with the Wood Mackenzie consulting firm in Houston said in a report. "The plastics industry was bright-eyed and optimistic heading into the new decade. The protracted trade war between the U.S. and China was pointed towards resolution, concerns over the fallout of Brexit had abated and demand expectations improved following a lackluster 2019.
"Such optimism was quickly withdrawn, however, as the coronavirus outbreak began to grip global economies, first in China and now worldwide," they added.
According to the Wood Mackenzie report, the impact of the coronavirus on polymer demand "has been nuanced, to say the least."
"While large portions of economies have temporarily shut down, frenzied consumer buying of necessities has offset much of the slowdown from other discretionary products," officials said. "Many of the concerns within the industry revolve around supply chain disruptions. Given the global and complex nature of sourcing, several industries (from construction to agriculture) have noted significant challenges accessing and delivering material."
They added that border controls "have been reinvigorated and in some cases across Europe restored, leading to lengthy logistics delays." U.S. manufacturers also are dealing with supply chain issues, officials said, as processors of medical and other essential goods are bottlenecked by labor shortages amid high product demand.
The Wood Mackenzie report looks at potential impacts on polymer demand from COVID-19 under a moderate "setback" model and a more extreme "shock" model. The models include most commodity resins, including polyethylene and polypropylene, as well as the engineering resin nylon.
"Under our setback scenario, we see significant demand loss in the near term driven predominantly by the slowdown in transportation and aided by easing demand within consumer/institutional products," officials said. "Some of the pent-up demand is made up in [the third quarter], however, as economies return to more normal operation."
Demand lost under Wood Mackenzie's more extreme shock scenario would not be made up in 2020. Resin demand from packaging markets could be a bright spot in any recovery.
Officials added that they expect the impact of COVID-19 on polymer demand to trend toward the setback scenario, but given the risks associated with complex global supply chains, they would caution that even "small tremors" could further push global resin markets towards the shock outlook.
At the OPIS data service in Houston, analyst Kathy Hall said that new capacity and shipping issues were affecting markets for plastic feedstocks ethylene and propylene even before COVID-19 hit.
"Throw in the COVID-19 coronavirus and panic in oil markets that brought crude prices to lows not seen in decades and, well, the story is now complex and fast-changing," she said in a research note.
"Ethylene is only as strong as its weakest fundamental and with dozens of downstream chemicals making up the demand side, ethylene is impacted by a myriad of nuances in diverse markets," Hall added. "No one building a world-scale olefins plant in the past five years would have planned for the recent trade wars with China, nor the coronavirus epidemic that had all but shut down Chinese manufacturing."
Propylene markets in the U.S. are smaller than ethylene and as a result haven't been affected as much, Hall said, although prices there have been down as well.
She added that the longer-term outlook for U.S. ethylene and propylene remains positive in spite of recent struggles.
"While the 2020 stories for U.S. ethylene and propylene may not be so rosy for producers, they are not horror stories either," Hall said. "Buyers can rely on having access to the lowest-priced olefins on earth, at least for the foreseeable future."
In the PP resin market, many North American PP makers are already experiencing high-volume orders for medical-grade products, such as nonwoven PP that goes into masks, according to a report from Blue Clover Polymer Solutions, a resin supplier and consulting firm in Princeton, N.J
Some producers will have smaller volume generic prime run programs because more reactor time will be dedicated to the medical grades, officials said, and there may be larger price spreads between certain PP products.
"It's logical to assume that PP grades that service more discretionary consumer products like housewares and automobiles will see lower pricing as demand for these products will move much lower in a recession," they added.