COVID-19: What it means for the chemicals industry

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Practical steps for responding to the coronavirus crisis

The chemicals industry is likely to feel the impact of the coronavirus (COVID-19) pandemic from every direction. Just as supply chains are being disrupted by outbreaks in key regions, demand may fall due to uncertainty in the global economy and capital markets. Workforces are facing the risk of infection, and governments are beginning to enact restrictions on movement — and both add an unpredictable dimension to the crisis.

The COVID-19 pandemic is causing widespread concern and economic hardship for consumers, businesses and communities across the globe. The situation is fast-moving with wide-ranging impacts. We’ve prepared some general guidance on COVID-19: What US business leaders should know: crisis management and response, workforce, operations and supply chain, financial reporting, and tax and trade.

There’s no one-size-fits-all approach to the current environment — and it’s certainly not business as usual. Most companies already have business continuity plans, but those may not address the fast-moving and unknown variables of an outbreak like COVID-19.

Typical contingency plans help enable operational effectiveness following events like natural disasters, cyber incidents and power outages, among others. They don’t generally take into account the widespread quarantines, extended school closures and added travel restrictions that are now being enforced in countries across the world. Each company’s response to these forces should be carefully tailored to the dynamics of its industry.

The crisis begins to raise a number of unique challenges. In PwC’s inaugural COVID-19 CFO Pulse Survey, finance leaders in the United States and Mexico shared their top concerns.

What are your top 3 concerns with respect to COVID-19? (Select up to three.)

Financial impact, including effects on results of operations, future periods and liquidity and capital resources
Potential global recession
The effects on our workforce/reduction in productivity
Decrease in consumer confidence reducing consumption
Supply chain disruptions
Difficulties with funding
Not having enough information to make good decisions
Impacts on tax, trade, or immigration
Cybersecurity risks
Fraud risks
Privacy risks
Source: PwC COVID-19 US CFO Pulse Survey
April 22, 2020: base of 305

What makes chemicals different

Here is our take on some issues that companies in the chemicals industry might face.

Crisis management and response

Issues that the chemicals industry might face:

The industry could potentially be hit hard by the COVID-19 outbreak on numerous fronts: lowered demand and productivity, operational and supply chain disruptions, potentially tightening credit markets and the health of their workforce.

The industry may be especially vulnerable given that the bulk of its production workforce is in on-site jobs that cannot be done remotely. Additionally, given the nature of the industry, companies may need to consider how to create social distancing in workplaces that are often worker-dense.

On top of this, many companies should prepare for major global supply chain and other distribution disruptions. They should also likely expect that supply chain partners may experience their own challenges and may not be able to fulfill orders on time — or at all — during the crisis.

Finally, expect slackening demand for products resulting from some impacted industries, including automotive and industrial products. Yet, we could simultaneously see a continued demand from other end-users, such as producers of personal health and household products.

Steps to consider:

  • Assess how profitability, loans, revolving credit and cash flow reserves can help support ongoing operations in a low-revenue environment — in light of current (and forecasted) cash operating expenses and needs.
  • Review capital and corporate cost budgets to identify not only marginal investments, but also discretionary items that can be cut.   
  • Revisit your capital allocation, liquidity and cash-flow plans (and forecast scenarios) to help conserve cash during the period of uncertainty, as some chemicals products may be impacted for a prolonged period. This should include reassessment of dividend and share repurchase plans.
  • Consider refinancing debt or accessing revolving credit lines.
  • Advocate for and help coordinate government support for a package of initiatives, including guaranteed loans and similar measures. At the same time, advocate for relevant government agencies to increase greater intergovernmental coordination and collaboration to help protect the industry from possible bankruptcy risks.
  • Consider temporary closure of facilities that may be underutilized.


Issues that the chemicals industry might face:

Chemicals companies employ about 850,000 people in the US, according to the Bureau of Labor Statistics. A significant share of those positions are directly involved in production and cannot be performed remotely. If COVID-19 infections spread throughout the workforce, it could reduce plant capacity unless adequate preventative measures are put in place. And if, as in the automotive industry, production facility shutdowns become necessary, output could be severely constrained. 

In the event that widening outbreaks of COVID-19 affect their workers, companies should expect that they may need to consider outsourcing some corporate functions (e.g., moving IT to the cloud, or shifting internal non-core operating functions to contractors).

Steps to consider:

  • Confirm your employees are safe and know how to protect themselves. Institute sanitation rules in the workplace and assess mobility policies to encourage remote working, where necessary and possible. Ask employees who are sick to stay home until they are better. Eliminate nonessential travel.
  • Discuss change management and flexible work arrangements. Expect a learning curve as companies devise new ways of working that may involve more remote workers and automation on factory floors. 
  • Assess strategies and plans to retain and deploy the workforce during the slowdown and establish risk mitigation programs for employees who may still need to work on-site. Invest in education campaigns for front-line employees who have to be on-site so they know how to help to minimize the spread of disease and understand what to do if they feel ill. 
  • Gather necessary data on employees (geography, visas, etc.) and track movements during the crisis.
  • Outsource functions that can trim operating costs.

Operations and supply chain

Issues that the chemicals industry might face:

The chemical sector’s supply chain has historically been strongly dependent on China, which has been heavily impacted by the COVID-19 pandemic and instituted wide-ranging countermeasures as a result. 

In addition to creating potential challenges in obtaining necessary raw materials, the disruption of global supply chains may also be jeopardizing chemicals producers’ ability to deliver finished products to customers.

As with previous downturns, the industry may likely move quickly to cut discretionary and capital spending to support operations. A key question for chemicals companies will be: Do you have the financial reserves to successfully weather the storm — or even possibly capitalize on the tumult in the industry?

Steps to consider:

  • Gain a keener, real-time situational awareness of your supply chains. Assess links in your supply chain and identify potentially weak ones — especially in geographies currently affected by COVID-19 and those that are likely to be impacted in the future.
  • Immediately implement sanitation measures and reconfigure workspaces for safety. For example, stagger shifts, increase distance between workers and ban visitors on factory floors.
  • Evaluate automation solutions to better reduce employee density in manufacturing plants and back offices. Those who have piloted solutions should ramp them up carefully, while others should consider starting to explore them. Consider focusing on these three areas: autonomous materials movement (e.g., autonomous forklifts and cranes and high-payload drones), automation of repetitive tasks including assembly (e.g., industrial robotics and mobile/collaborative robots) and predictive maintenance (e.g., using IoT and AI for predictive maintenance).
  • Prioritize cybersecurity and system resiliency in response to significantly higher levels of remote access to core systems, and because employees and management could be more susceptible to social engineering efforts (e.g., phishing attacks) in the midst of a crisis. 
  • Transfer new knowledge down the supply chain. Update leading practices as the situation evolves and help assist suppliers in implementing them. This may require increasing transparency in the supply chain through daily self-reporting with critical suppliers. 
  • Prepare for supply chain pivots that could require identifying alternative suppliers.
  • Improve your supply chain visibility and lines of communication to better detect and remediate potential problems. If you don’t have digital supply chain solutions already in place, create greater transparency through daily self-reporting with critical suppliers. 
  • Keep an open and regular dialogue with your suppliers and customers on how they may be impacted by COVID-19 and how their experiences could affect your business.
  • Seek alternatives that allow you to help preserve relationships and co-create solutions. It’s possible that a third-party provider may prove to be a critical point of failure in creating a response to COVID-19.

Financial reporting

Issues that the chemicals industry might face:

Disruption in the sector may lead to numerous financial disclosure implications. Companies in regions that have been hit hard by the pandemic may face challenges in finalizing financial statements with operations disrupted. 

With the uncertain severity of economic disruption, some companies may be facing the prospect of triggering events for goodwill and long-lived asset impairments and mounting concerns over the recoverability of receivables, restructuring actions and/or liquidity issues. 

At the same time, reduced productivity caused by employee absence due to illness could make the significant uptick in the volume of work in the coming weeks — and in subsequent quarterly filings — more challenging.

Steps to consider:

  • Broaden disclosures to consider going beyond what’s required in financial statements. For example, disclose management’s analysis of the current and future impact of liquidity and credit crunch on business.
  • Plan for disclosures about risks, such as how recent events may impact current and future judgments and estimates inherent in financial reporting (e.g., impairment assessments, inventory obsolescence, receivables collectibility, debt covenants and impairments).
  • Proactively communicate with lenders and other stakeholders, to help avoid surprises and better enable potential rescheduling of debt or alternative financing sources.

Tax and trade

Issues that the chemicals industry might face:

China, one of the epicenters of the COVID-19 outbreak, is a major link in the supply chain of many chemical companies. This pandemic may drive the sector to consider alternative sourcing opportunities, which could have important tax, transfer-pricing and customs implications. Global companies may consider repatriating overseas cash from foreign subsidiaries.

Chemicals companies should react to and plan for the potential changes to supply chains and workforce global mobility due to COVID-19. Each of these changes requires careful consideration of potential tax implications, and companies ought to consider these implications now.

Some chemicals companies may be contenders for government-provided financial assistance. Governments are likely to consider extending lines of credit, reducing infrastructure costs, short-term funding, lowering the tax burden and supply-chain assistance. Multinational companies should expect potential cash-flow constraints from overseas operations, including cash repatriation complications and irregularities. Cash could also be bottlenecked when goods are paid for but not supplied (or delayed and stranded). Such cash bottlenecks may be more likely to occur in geographies most affected by COVID-19.

Steps to consider:

  • Take into account the tax and tariff implications of any changes to the supply chain. Everything should be on the table, including possible changes to design and materials, when possible and as required. Planning should go deeper than identifying alternate suppliers. Implications could include customs and duties, as well as transfer-pricing considerations if the substitute components or materials are internally sourced.
  • Address mobility and immigration issues for employees moving in and out of areas affected by COVID-19. Consider the tax implications of mobility. Depending on where you temporarily host employees, the company — and the employees — may face unintended tax consequences.
  • Prepare and plan for the different types of support governments may extend — from emergency funding to state guarantees of new loans to tax incentives or deferrals.

The way forward 

Chemicals companies, like many other manufacturers, are exposed on multiple fronts to the disruption wrought by the COVID-19 outbreak. In the immediate future, they may grapple with keeping their workforce and their families safe, while keeping operations in place as much as possible.

Commodity chemicals companies may have to cope with feedstock price volatility, supply chain and logistics challenges, and unpredictable customer demand. And the industry may well need to find alternatives to the sector's reliance on inputs from China-based suppliers.

In the medium term, demand for products ranging from automobiles to some consumer products could likely decrease. Small pockets of the industry may benefit — such as those that produce chemicals included in sanitation products or certain plastics used in medical devices — but the vast majority of the industry may likely be negatively impacted due to significant reliance on Asia for supply, as well as lower global demand in end-use markets. Many in the industry may put into place measures to ride out this crisis by helping contain the effect of the virus on their workforce, temporarily closing facilities, maintaining cash liquidity and shoring up operations on numerous fronts.

Looking ahead to containment of the virus and an eventual economic recovery, chemicals companies should consider what the industry recovery may look like, and plan for what steps they can take now to position themselves as well as possible in a post-COVID-19 world.

Contact us

A.J. Scamuffa

Chemicals Leader, PwC US

Sarah Rodriguez

Principal, PwC US

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