For many centuries the chemical industry has always played a crucial role in forming the global economic landscape contributing as a manufacturer of technologies, as consumables with innovative and life-enhancing products. It has not only been an integral part of economic development in many regional economies but most sectors of those economies. From a wide range of products for general consumption, fertilizers, agrochemicals to LED lightings, the industry also provides the key inputs that are considered under the United Nations 17 Sustainable development goals such as processes that involve the mechanism for clean drinking water, plastics used for packaging and other man-made fibres. Moreover, through an effective system of recycling and reuse of molecules for the production of consumable items, the industry has immensely contributed to bringing a holistic approach to the well-being of society. Pre-covid era, the chemical industry added USD 1.1 trillion to global GDP thereby supporting alone 120 million jobs across the world while the Asia-Pacific chemical industry made the largest annual contribution ever of around USD 2.6 trillion providing 83 million jobs (International Council of Chemical Associations Report, March 2019). 

The Covid Slump on The Global Chemical Markets

Sluggish demand, drop in sales, exorbitant price cuts and plummeting exports are the common saddened consequences in almost every industry and the chemical industry is no exception. The continuous impact of the novel Coronavirus has further worsened the precariously driven state of the industry, especially chemical companies which are significantly exposed to the severely affected sectors such as automotive to oil and gas. Apart from the probable effects, the industry has been squeezed from all directions where disruptions in the supply chains and operations sprung up as another major concern due to strict border closures and travel restrictions and bans. The U.S. bears the largest chemical manufacturing industries being the world's leading nation in the production of chemicals. Employing around 853,000 employees as per the U.S. Bureau of Labor Statistics, at the beginning of 2020, the U.S. chemical companies were already experiencing cyclical challenges from overcapacity to volatile pricing trends and certain geopolitical reasons. However, the performance of the entire chemical sector wore a mixed response. For instance, demand for plastic resins shot up while demand for synthetic rubbers required for tire making fell off.

While Japan, being the third-largest chemical industry is engraved with the historical slowdown of its chemical sector. The second wave has brutally hit the sector once again. Japan also experienced a pretty mixed response to its chemical businesses. Demand for suppliers of packaging food materials, pharmaceutical ingredients avoided the Covid lean while some chemical companies related to print media (magazines, newspaper), cosmetic companies like Shiseido have experienced a slump in sales due to low demand of consumer preferences. The country's top manufacturing industry - transportation machinery is too into a crisis for its large dependencies of raw materials from the chemical industry. BASF, the world's largest chemical producing company witnessed a fall of 2% in their sales volumes compounded by low demand from the automotive market and a 30% slump in their revenue.

No doubt the Chinese Chemical Industry is also devastating despite having a strong manufacturing base. With high infection rate, transportation halt, halt in production facilities of several manufacturers and end-user industries complemented by low demand of chemicals to be used in production facilities, the Chinese Chemical markets also faced the worst hit. Although, to counter the effects China has kept its chemical businesses open amidst the pandemic. But again low demand from end-users, understaffing and deficit of raw materials from other economic slowdowns have negatively impacted their production volumes and capacity.

The Indian Chemical Market - a Profound Transition?

Being the third-largest industry in Asia and the sixth-largest sector in the world, the Indian chemical industry contributes 3 % to the Global chemical value chain and 7 % to India's GDP. The pandemic did hit the sector where it underwent volatile changes in the market but rebound post lockdowns. Due to the slowdown in China and as countries like the US, Canada, European Nations and Australia have been badly hit by supply chains, demand for alternative manufacturing and supply chain lines is imminent. Experts believe the Indian Chemical industry can fill the void and this is one way expected to bring the Indian economy back on track. Although the sector had a short-term Covid impact with global supply chain disruptions, the industry got its grip through the manufacture of plastics, an important component of the entire chemical market and adding as the net exporter of chemical supplies for the first time in decades. Having a strong base on raw materials, India's plastic chemical market has contributed immensely to the exports during the FY19-20 with the production of products required for personal protective equipment (PPE) kits, ventilators, Covid-19 test kits and industrial applications in the form of soaps, detergents, hand wash and sanitizers. But the recent second wave is now a matter of concern with rising country blockades and transportation barriers that have severely impacted the exports of the raw materials and further complications in the supply chain. For instance, it was known from an employee in a Japanese chemical company that India holds the highest production of Castor Oil but due to transportation barriers and supply chain disruptions exports from India is a matter of issue that indirectly disrupting the global value chain on the production of other chemically driven products that requires castor oil as an ingredient.

Global Supply Chain Disruptions, Cause and Cascading Effects

In 2020, the novel Coronavirus outbreak had brought strict international industrial halts, national shut-downs, cease of travels and only essential businesses got the green flag. With lesser manpower and effect over the entire industrial sectors, supply chain disruptions were of course, inevitable. The supply chain of the chemical sector was heavily affected by such impending effects which further led to tumultuous havoc on a wide array of industries directly or indirectly related to the chemical industry. The Global Chemical industry incurred a 3% fall at the onset of the virus spread and almost a huge margin of 6% in March. Shortages of raw materials and labour forces with nation shutdowns were the prime cause of the grim outlook.

The chemical industry is diverse and in India, the pharmaceutical segment of the industry plays a key role in contributing to the global economy and a key source to curing new diseases and emerging medical conditions. The pandemic has badly hit the pharmaceutical value chain of India's large dependence on China. India is the largest exporter of generic medicines to almost around 200 countries where its largest consumer is the US. The key ingredient for manufacturing these medicines is the large requirement of APIs and key starting raw materials which are sourced from China. Further spread of the virus with the extension of lockdowns will eventually lead to more supply chain disruptions that will lead to a shortage of APIs and hence lower the production and export of generic medicines from India. Shortage of supply chain and erratic production in China will further worsen the entire value chain with high costs of production and low sales. This would result in shortages everywhere and therefore disruptions. The only hope India can have is shifting the manufacturing base within the Nation or search for alternative market operations which have already been exercised by many pharma companies. On similar lines, the pandemic has hit the petrochemical industry which has further affected the plastic and packaging industry. As raw materials used in the plastic industry are derived from the petrochemical industry. Impact on crude oil prices due to severe lockdowns has, in turn, affected the plastic value chain.

Can the Chemical Supply Chain Be Reshaped?

For any industry, for every processing or manufacturing work, even a negligible amount of chemical substances are required. This marks the importance and strong presence of the global chemical industry in the era of globalization and trade. But yes, now the air contains a dangerous virus, the second wave of Covid-19 in India has once again loosened the grip of the hopeful chemical companies. And now, the question comes how long this Covid-19 will stay and plan to disrupt the supply chain cycle? Before the second wave struck, the chemical industry was up for a rebound with the uptake of its relevant automotive and consumer durables. But still, the industry has not healed thoroughly from the first outbreak of the novel virus.

Apart from the current second outbreak, the disruption of the chemical supply chain compounded with the growing tensions between US-China, ascending crude oil prices, and then the recent U.S. winter storm through the U.S. Gulf Coast is another reason for a fragmented supply chain. The slow inclination of the chemical industry towards digitalization is a major drawback of supply chain setbacks. China, which is the major link of the supply chain in the chemical manufacturing hub, had quickly rebound from its earlier shutdown where digitalization was their solution. Remote working operations through adaptation of artificial intelligence, machine learning and robotics are some of the needful requisites in the new normal world for maintaining a robust supply chain.

Again if the world's largest chemical industrial-based countries like the U.S., UK, Germany, Canada are routing out for an alternative manufacturing base away from China, then those chemical markets shall have the potential of enough financial reserves or capital to weather the storm. With the second wave, the chemical industry is yet again in a precarious state. The surge in demand in automobiles and other consumer durables can help the sector to rise again but this could have a negative impact as demand could likely decrease.