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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)
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.
