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Path towards European chemicals sector recovery expected to be bumpy

19 August 2020 Sian Jones
  • IHS Markit Europe Chemicals PMI signals stable operating conditions in July
  • First rise in new orders across the European chemicals sector since September 2018
  • IHS Markit Comparative Industry Service forecasts challenging demand conditions over the coming year

The IHS Markit Europe Chemicals PMITM signalled a challenging start to 2020 amid the coronavirus disease 2019 (COVID-19) pandemic. Operating conditions across the sector stabilised in July, bringing to an end a sequence of decline stretching back to late-2018.

Within the chemical sector, the pandemic has brought vast divergences in fortunes. Demand for hand sanitiser and oxygen (to help treat patients infected with COVID-19) soared during the initial surge in cases, but demand for automobiles and consumer goods dropped, which has dented overall plastics production despite a marked rise in single-use personal protection equipment (PPE).

While the IHS Markit Comparative Industry Service is expecting a rebound in output across the chemicals sector as 2021 progresses, the latest forecast suggests a 'W' shaped recovery for the sector, as demand conditions remain muted in 2020, with the rate of growth stabilising in the longer term.

Pent-up demand looks to provide early boost to sales

Following the reopening of many economies, consumer spending has begun to pick up as pent-up demand is released. This initial burst of activity has boosted new sales at many consumer goods firms, with sector PMI data signalling a solid, and renewed, uptick in sales of European household & personal use products and automobiles & auto parts during July. It is expected that such an upturn will help support chemical firms' new order inflows as supply chains kickstart.

Logistical issues stemming from transportation delays and pandemic-related shutdowns have often been linked by panellists across global PMI surveys to challenging foreign demand conditions. However, European chemicals producers diverged from the global trend in July, as companies recorded the first expansion in foreign client demand since the start of the year, and at the fastest rate since August 2018.

Uncertainty marring the outlook amid fears of a second wave

The latest forecast from our chemicals team signals that total global demand for key plastics such as polypropylene will be outstripped by total global supply in 2020, despite it being a key component in essential PPE. This bucks the trend seen in recent years, where demand for key components in single-use plastics outpaced supply. This excess supply is not set to continue in the longer term, but it is nonetheless concerning for chemicals manufacturers already facing challenging demand conditions for products, with latest PMI sector data showing sustained downward pressure on output prices.

Meanwhile, many businesses across the global PMI surveys have raised concerns surrounding the stability of consumer spending once pent-up demand has dissipated. At the same time, current forecasts also assume no further national lockdowns, which, if necessary, could again be detrimental to production and spending on larger ticket purchases by households, and investment by firms.

Forthcoming economic data releases:

  • August 21st: IHS Markit Eurozone Composite, Manufacturing and Services Flash PMI (August data)
  • September 4th: IHS Markit European Sector PMI (August data)

Siân Jones, Economist, IHS Markit
Tel: +44 1491 461017

© 2020, IHS Markit Inc. All rights reserved. Reproduction in whole or in part without permission is prohibited.

Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.

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