Chemicals plays its part in combatting Covid-19

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Chemicals

This is the first weekly update from Santander’s chemicals team on how the Covid-19 pandemic is affecting our clients and the sector as a whole.

Chemicals

We’re working closely with clients and colleagues across the chemicals sector as it responds to the Covid-19 pandemic. Given the key role that the sector plays in combating the virus, we’re highly supportive of efforts by the Chemical Industries Association (CIA), of which we are a member, to ensure the Government allows the industry to continue operating throughout the lockdown period. The chemicals it produces are vital across so much of the supply chain that will determine our success in defeating Covid-19, and desperately needed by the NHS and our other emergency services.

The CIA is publishing regular updates for members, which are available here. Its latest news includes:

  • Regulators in the sector (including the Health & Safety Executive, Environment Agency, Scottish Environment Protection Agency and Natural Resources Wales) are taking a pragmatic approach and responding sensibly where businesses raise specific issues. Interventions have been postponed in certain cases, reporting requirements have been delayed and regulators are trialling “virtual site tours” and technologies such as Skype to minimise site visits.
  • The CIA believes the sector now needs wider derogations so manufacturers can shift their production efforts – for example, in the use of hydrogen peroxide to make sanitiser products.
  • Chemicals companies need to keep the issue of personal protective equipment (PPE) sharply in focus. While manufacturers hold stocks of PPE, many are reporting delays in receiving supplies. They are also receiving requests to offer spare PPE to the NHS; this is understandable and will often be possible, but key industry workers will need PPE to continue working too.
  • Some critical supplies are getting stuck at borders; maintenance equipment is a particular problem. However, faster “green lanes” should be introduced within the next week or so.
  • A relaxation of competition law to allow delivery companies to work together is under consideration.

It’s worth saying that amid the gloom, the sector continues to prove its huge value and social worth. INEOS Group has hit its 10-day target to build a hand sanitiser production facility near Middlesbrough and has begun production of 1 million sanitisers a month. The plant, in Newton Aycliffe, is running three shifts around the clock and began delivering free products to the NHS on 31 March.

 

Manufacturing data begins to tumble

More broadly, the effects of the pandemic on manufacturing are now beginning to show up in sector data. The IHS/Markit Purchasing Managers Index, based on a survey of business leaders in the sector, fell to 47.8 in March, a three-month low and down from 51.7 in February. Any reading below 50 indicates a majority of respondents have experienced a contraction in activity.

Given that the UK government’s response to Covid-19 did not accelerate until the second half of the month, with the Prime Minister introducing lockdown measures on 23 March, April’s figures are likely to be significantly worse. Manufacturers across the UK are now focused on liquidity and very careful cash flow management. Several listed engineering companies have now announced they are cancelling planned dividends in order to conserve cash and we expect more to follow this example.

The experience of manufacturers in the UK mirrors that of their counterparts in other parts of the world. Factory activity contracted across most of Asia in March as the pandemic paralysed supply chains. Significant falls in activity in Japan and South Korea overshadowed a modest improvement in China where authorities have felt able to relax some of the restrictions as Covid-19 cases have slowed. With the number of countries around the world imposing their own lockdown regimes, we now expect the impact of the pandemic on global supply chains to be more enduring than many originally expected.

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