Chemicals Industry Adapts to Historic Impacts of COVID-19, Oil Price Declines

Wednesday, June 17, 2020

Overview: This report describes the historic impacts of two forces, COVID-19 and massive oil price declines, on the global chemicals industry. These forces are immediately reshaping supply chains and global demand for chemicals, reshuffling global competitive dynamics, and emphasizing the importance of diversifying supply chains and revenue sources.

Key takeaways:

  • Because chemicals are key to many industries that manufacture products for everyday life, the chemicals industry is facing significant disruption due to COVID-19. Most chemicals companies are experiencing significantly weaker demand for their products, and supply chain interruptions are affecting financial and operating performance. On the positive side, strong demand for chemicals used in response to COVID-19 is partly offsetting demand weakness in certain end-markets.
  • A sudden and sharp decline in oil prices is also reshaping the chemicals industry, causing a major shift in chemicals prices and significantly affecting global competition. U.S chemicals producers, which historically held a strategic advantage for raw material inputs due to their reliance on natural gas, have seen an immediate negative impact relative to Asian and European competitors. But global demand weakness due to COVID-19 will negatively impact all regions.
  • While major M&A activity will likely remain muted until some uncertainty has abated, lower asset valuations and a pressing need for consolidation could drive increased M&A activity in the coming months. Megamergers and a focus on diversification through non-cyclical assets are likely to define deal activity in the near term. If the recession is long and asset prices become depressed, private equity sponsors and their portfolio companies could become more active in larger-scale transactions and divestitures.

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