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.
Here is our take on some issues that companies in 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.
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).
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?
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.
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.
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.