Moody’s expects business conditions will improve in 2021 after a short period of weakness. A resurgence of coronavirus cases in certain regions and evolving social restrictions will reduce global demand for chemicals in the first quarter of 2021. A return to growth will follow once the public health situation is under control and restrictions are eased – the timing of which remains uncertain We expect chemical demand in Asia, where governments contained the virus more quickly, will hold up better than EMEA and North America.

According to Moody’s Investor Service, China remains the exception with its fast demand recovery in 2020 and continued growth expected in 2021. While Chinese exports have not returned to pre-pandemic levels, increases in government spending and consumer demand have boosted demand for many chemicals to levels approaching, and in some cases above, pre-pandemic levels.

Elsewhere in Asia, the recovery in demand for chemicals has been mixed with some countries such as India still suffering from high rates of coronavirus infection, despite a decline from their peak rate in October. We expect chemical demand in these countries to grow more gradually, but still faster than in North America or Europe.

On the positive impact of coronavirus on some chemical end markets, Moody’s says: “Applications for chemicals and polymers in packaging, personal protective equipment (PPE), cleaners/sanitisation and certain consumer end markets such as architectural coatings experienced significant growth in 2020, which we expect will continue in 2021. We expect North American polyethylene margins to decline in 2021 after a strong expansion in the second half of 2020 due to packaging demand and unplanned outages, mostly due to hurricanes. We expect companies to post strong fourth-quarter profits followed by a much weaker first half of 2021 as full production in North America and new capacity globally weigh on margins,” the report reads.

According to the report, consumer non-durable end markets such as nutrition, pharma, home and personal care and food and beverage remain resilient, while construction has recovered faster than expected. “The performance of a number of specialty chemical companies has been less affected during the pandemic as consumer demand remained stable or increased, offsetting weakness in their industrial segments. Companies heavily weighted to the construction markets performed well in the second half of 2020 and we expect this to continue in 2021,” it says.

Moody’s says that the environmental and social risks for the industry are rising. “The impact over the next 12-18 months is focused mainly on corporate decision-making for major capital investments and M&A. Over a longer horizon, we expect that ESG-related factors will undercut demand growth for certain chemical products, especially single-use plastics. Increasing regulation in developed countries, commitments by global consumer goods companies and greater societal pressure to move toward carbon neutrality and use of recycled plastics, will increase spending on research or pollution control activities, while reducing demand over the next 10 years in developed countries,” the report states.

On change in outlook, Moody’s says the outlook could move to positive if countries are able to reduce coronavirus infection rates and fully reopen their economies faster than expected. “The inoculation of a majority of the population in most large countries with an effective vaccine would greatly increase the likelihood that global chemical industry profitability would increase by more than 5% on an annual basis. We could change the outlook to negative if coronavirus infection rates remain high and there are delays in developing and distributing an effective vaccine, causing the largest countries to restrict economic activity to control the virus,” the report opines.

Industry outlooks reflect Moody’s view of fundamental business conditions for an industry over the next 12-18 months. “Since outlooks represent our forward-looking view on business conditions that factor into our ratings, a negative (positive) outlook suggests that negative (positive) rating actions are more likely on average. However, the industry outlook does not represent a sum of upgrades, downgrades or ratings under review or an average of the rating outlooks of issuers in the industry, but rather our assessment of the main direction of business fundamentals within the overall industry,” it says.