Nitrogen+Syngas 365 May-Jun 2020
31 May 2020
The new normal
“Agricultural demand… continues to be fairly strong”
The devastating effects of the Covid-19 pandemic continue to be felt around the world. At time of writing, nearly 4 million cases have been recorded, and at least a quarter of a million people have died, with the suspicion of many more, either from accidental or deliberate undercounting. Figures for excess deaths above a normal seasonal baseline show that places such as Turkey, Ecuador and Indonesia have probably been far worse affected than the official statistics show. There are nevertheless finally hopeful signs that Europe, so far the worst affected region, is beginning to follow the pattern of East Asia and Oceania and that cases are falling. The infection also seems to have peaked in North America, though in the US there is a long tail of infections. Elsewhere, cases are still rising in countries such as Brazil and Mexico.
Now, however, while research on vaccines and palliative drugs proceeds at a rapid pace, and there are moves to gradually relax social restrictions imposed to halt the spread of Covid-19, there is the question of what a post-outbreak society will look like until a vaccine is finally in widespread distribution and use. Here in the UK, this concept has become known as the ‘new normal’ – a series of continuing restrictions that may last well into 2021, or even longer.
The economic impact of the pandemic so far has been a severe shock across all industries as countries closed down almost overnight. In terms of pure economic activity the effect is sure to be a global recession this year. China’s GDP figures for Q1 2020 show a contraction of 6.8% compared to Q1 2019, and the country’s chemical manufacturing output was down 21% for Jan/Feb 2020. But perhaps more important in the long run will be the impact of the ‘new normal’ on how businesses are able to operate across the rest of 2020 and into 2021. For the travel and restaurant sectors, for example, the outlook is a bleak one. In the publishing industry, we have moved reasonably smoothly to operating without an office, but getting physical copies of issues to customers remains a difficult and in some cases impossible process due to customs restrictions and border checks, or the partial or complete shutdown of postal services in some countries.
In the syngas-based chemicals sector, there seems to currently be a fairly sharp divide between agricultural nitrogen demand, which continues to be fairly strong, and where plant shutdowns and logistical issues have served to decrease availability and increase prices – and industrial sectors. Hydrogen use is constrained by refinery shutdowns as demand for fuels collapses, at least in the short term. Methanol demand rests upon industrial chemicals, often badly affected by closures of factories; as well as fuel uses, which may see a pickup as lockdown restrictions ease; and the all-important Chinese olefins sector. Demand for polypropylene fibres to make face masks has actually seen demand continue to be strong in that industry, but the crash in oil prices has made the oil route to propylene cheaper than coal-based methanol, as we note in our article in this issue. Feedstock prices at least are at several year lows, in some cases historically low levels, giving producers slightly more room for manoeuver, but the outlook remains very uncertain.
On the investment side, there is considerable momentum and significant sunk costs behind a number of current projects, but many companies are re-evaluating what until a couple of months ago had looked like sound business opportunities. It is currently very difficult to divine what the shape of a post-Covid world might look like, and much depends upon government responses over the next weeks and months. Under such circumstances, the willingness of banks to loan money outside of government backed schemes may be greatly curtailed. It could even be that increasing demand in some sectors suddenly finds that it is undersupplied because no-one was willing to build new plants for a couple of years.
The new normal will take some adjusting to for everyone, but like it or not, it is going to be with us for many months to come.
