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Moodys: Improvement expected for chemicals in 2021

December 17/2020

MOSCOW (MRC) -- Business conditions for chemical manufacturers are expected to improve in 2021, albeit with some first-half difficulties due to the resurgence in COVID-19 cases in much of the world, reported Chemweek with reference to an outlook report from Moody’s Investors Service (New York, New York), a credit ratings agency.

Demand growth is expected to be strongest in Asia, where the pandemic has been brought under control more quickly than in Europe and the US in most countries.

Moody’s characterizes the outlook for credit quality as ‘stable,’ reflecting an improving operating environment but “sustained recovery in the global economy (that) is delayed until 2022,” the ratings agency says.

Commodity chemical makers saw the sharpest declines this year, and are expected to see the strongest bounceback next year, Moody’s says. “However, we do not expect that EBITDA for most commodity producers will return to 2019 levels,” Moody’s adds. “We view (second-quarter) 2020 as the trough with a number of companies benefitting from higher commodity prices and volumes in the third and fourth quarters as several sectors rebounded, including autos, construction and housing.” Continued strong demand for packaging will also prop up polyethylene prices.

For specialties producers, the rebound will be less pronounced, as the downturn was less severe. The demand outlook is strong for coatings, cleaning and sanitizing chemicals, food and nutrition, and pharmaceutical ingredients, all of which showed resilience this year. “Most specialty chemical producers will return towards or even exceed their pre-COVID EBITDA levels in 2021,” Moody’s says. However, companies with major exposure to the automotive, energy and aerospace sectors, which will see weaker recoveries, are the exception, although automotive production is expected to gradually increase.

Regionally, APAC is expected to outperform the rest of the world, with China leading the way. China’s recovery has been ‘v-shaped’ according to Moody’s, while other countries have been more varied, although the general trend is positive. Europe has the weakest outlook, due to a very large increase in COVID-19 cases, a strengthening euro, and uncertainty related to Brexit.

Longer-term, environment, social and governance (ESG) will weigh more heavily on chemical makers, as challenges around climate change and recycling cut into demand in some sectors and factor into investor risk assessments. “The impact over the next 12-18 months is focused mainly on corporate decision-making for major capital investments and M&A,” Moody’s says. “Over a longer horizon, we expect that ESG-related factors will undercut demand growth for certain chemical products, especially single-use plastics.”

As MRC wrote previously, chemical production is rebuilding momentum after shocks linked to the global COVID-19 pandemic, according to the American Chemistry Council’s (ACC) Year-End 2020 Chemical Industry Situation and Outlook. US chemical production volume excluding pharmaceuticals is expected to fall by 3.6% in 2020 followed by growth of 3.9% in 2021. The US decline is the sharpest since 2008 and 2009, during the financial crisis.

We remind that Russia's output of chemical products rose in October 2020 by 7.2% year on year. At the same time, production of basic chemicals grew in the first ten months of 2020 by 6.3% year on year, according to Rosstat's data. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the January-October output. October production of polymers in primary form grew to 857,000 tonnes from 852,000 tonnes in September. Overall output of polymers in primary form totalled 8,340,000 tonnes over the stated period, up by 17%  year on year.
Author:Margaret Volkova
Tags:Europe, PP, PE, propylene, ethylene, car components, petrochemistry, construction, packaging, pharmaceuticals, China, Russia, USA.
Category:General News
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