UK chemicals recover?

Neil Eisberg | Editor

Health and the economic situation remain top of everyone’s agenda while the Covid-19 pandemic seems to surge and retreat in countries around the world on an almost daily basis. In most cases, the news revolves around lost sales and jobs, and calls for government aid to ride out the storm.

While other industry sectors appear to be suffering to a greater degree over recent months, the UK chemical sector seems to be holding its own. According to the UK Chemical Industries Association, the industry has seen a halt in the decline in sales in early 2020. Companies are reporting stability or even improvement.

In a survey of CIA member companies, half of respondents said that in Q2 2020 , exports to the EU and also to the rest of the world had remained at current levels or improved, as had capital expenditure and business utilisation. In addition, 80% reported stability and growth in employee numbers and the amount invested in R&D.

Looking at Q3, 80% of the businesses see stability and improvement in domestic sales and global exports, and over 70% see the same happening to their EU exports and to capital expenditure with any job losses and reductions in R&D expenditure occurring in around 10% of companies.

In early August 2020, CIA Chief Executive Steve Elliott said: ‘Given the huge challenges earlier in the year, it is good to see some stability has been reached. Our member data confirms what we’ve seen in the official figures from the Office of National Statistics (ONS) for the first five months of the year.

‘As businesses predict the next twelve months, some optimism remains but it is very hard to be clear. A return to levels of the pandemic similar to those we saw earlier this year, coupled with Brexit, means we cannot be confident to the degree we would like.

‘While the majority of businesses are predicting an even stronger export performance (52%), ramping up in stability of new orders (75%) and the same prediction for production levels, jobs and R&D, plus greater capacity utilisation, the uncertain outcomes of the Brexit talks and any Covid-19 spike means the tremendous hard work shown by businesses in the sector could be at risk. I hope this is not the case and we will continue working to support the need to fight the pandemic and deliver strong business performance.’

As Elliott hinted, however, the picture is not entirely rosy. ‘Some of the markets we supply – healthcare, food and drink, and some consumer goods areas – are clearly performing better than those such as automotive and construction. Autumn demand stimulus packages for those manufacturing industries that have been hardest hit will help the entire supply chain.

‘More directly, what we as a sector need is a successful conclusion to the UK/EU trade talks including tariff-free frictionless trade and regulatory consistency; taxation reform through a reduction in corporation tax; improved incentives for R&D; and a new green energy deal with a serious review of energy cost’.

Summing up, he said: ‘In this uncertain world, there is now the chance for the UK government to set a clear business agenda for the future that creates investment opportunities across the whole of the UK and the chemical sector hopes it will rise to that challenge. With the right conditions, we can maintain and grow our significant export performance, providing a strong and resilient chemical supply chain that underpins all other industrial sectors, jobs and growth across the country.’

The picture for SMEs across the whole UK manufacturing sector, however, is not so optimistic with output volumes falling at the fastest rate on record since October 1988, during the financial crisis, according to the most recent CBI SME Trend Survey. Total new orders also declined at the quickest rate on record, and the fall in headcounts, down 43%, matched the record decline during the financial crisis, down 44%. However, the CBI says that business sentiment improved slightly in Q2, up 9%, following a rapid decline in April 2020, down 81%, but export sentiment fell at a much slower rate than the record drop in Q1.

For Q3, output is expected to recover at a slow pace, with total new orders expected to remain much the same. Over the next year, capital investment is forecast to fall 51% for buildings and 42% for plant and machinery, with product and process dropping by 7%. These falls in expenditure are said to be due to uncertainty about demand, highlighted by 75% of survey respondents, as well as inadequate net return (47%), internal finance shortages (38%), inability to raise external finance (29%) and labour shortages (33%).

While larger concerns in the chemical sector, appear to be weathering the Covid storm, SMEs across the board are suffering along with other sectors of the economy. With no immediate end in sight for the crisis, and the availability of vaccines uncertain, the chemical sector as a supplier to the rest of the manufacturing sector and beyond will need its current optimism.