The coronavirus crisis may simply accelerate key macro trends already underway, creating a volatile backdrop for chemical companies to navigate on the road to recovery.
Four key macro trends are shaping global discontentment: growing income inequality; the displacement of labour from automation, technology, immigration and free trade; wars displacing investment in infrastructure, healthcare and education; and increasing polarisation via social media, said Ian Bremmer, president of global political risk research and consulting firm Eurasia Group.
Bremmer presented at the American Chemistry Council (ACC) virtual annual meeting.
“This is deeper than Trump. It is structural, as it’s happening in so many countries. Politics is just symptomatic of that divide,” said Bremmer. “You add the coronavirus, and it just accelerates these trends.”
For example, technology can take away the ability of brick and mortar stores to turn a profit, even more so during the coronavirus crisis. And the clash between the US and China is progressing more rapidly because of the coronavirus.
George Floyd protests in US
In the US, the violent protests being sparked by the killing of George Floyd by police come amid a backdrop of a hyper-accelerated polarisation of political views, inequality, over 40 million unemployed Americans, and a major contraction in GDP, with the economic impact being experienced more by African Americans and other minorities, he pointed out.
“It should surprise nobody that we end up with much more violent protests with rioting and looting,” said Bremmer.
However, the impact of the widespread protests on the chemical industry is likely to be limited.
“I don’t see a great deal of economic impact [from the protests] on the chemical industry,” said Peter Huntsman, CEO of Huntsman Corp, in an interview with ICIS amid the ACC virtual annual meeting.
“We need to bifurcate between the protesters and the rioters. I don’t see how you can view the disturbing video of police brutality and not see a problem. We need to continue taking steps of progress,” he added.
The chemical industry has a unique opportunity to attract people from the high school level to the STEM (science, technology, engineering and mathematics) disciplines, where they can have better job opportunities. In the US, many of its facilities are on the Gulf Coast and coastal southeast, which have more diverse populations, he said.
“In the hotel industry, it’s hard to start from the ground floor and get to a six-figure salary in management. But working at a chemical plant, with trade technology skills, you can one day retire with USD 1 million in savings,” said Huntsman.
“These are great jobs, and we have to look towards better diversity in the workforce,” he added.
Some of the root causes of the civil unrest include people under quasi-house arrest from the coronavirus lockdowns, and many people in service sectors losing their jobs, often after finding employment for the first time, he noted.
Add to that the degree of frustration around racial discrimination, and isolated cases of police brutality, and we’re in today’s situation, said the CEO.
US 2020 presidential election
On the coming 2020 US presidential election, normally an incumbent president presiding over high double-digit unemployment, over 100,000 dead from the coronavirus, and a big decline in GDP would lose, Eurasia’s Bremmer said.
However, President Trump’s approval rating stands at around 42% – the same as when there was record low unemployment, he pointed out.
“It’s because the country is so incredibly divided. [Democratic candidate Joe] Biden has a broader base than Trump, but it is less enthusiastic,” said Bremmer.
Another interesting wrinkle is that while Biden’s base tends to be more scared of coronavirus, Trump has been all about getting people back to work. His base is more likely to show up at the polls, he noted.
In Eurasia’s latest polls in US swing states – the ones that will matter in the coming election – Trump and Biden are within the margin of error.
“It’s as close to a coin flip as you can possibly call it,” said Bremmer.
“It will be a very interesting election. If you look at polling today, I’d give the popular vote to Biden and the electoral vote to Trump,” said Huntsman.
“Enthusiasm is important. Who’s going to go out in a rainstorm or the cold to actually vote? You don’t see Democrats having that fervent enthusiasm for Biden just yet – it’s been a lacklustre campaign,” he added.
If Trump’s approval ratings slip into the 30% range, there is a greater probability of Trump ramping up the rhetoric against China and using it as a cudgel in promoting the view that Biden is soft on China, he said.
“I do think we will head towards a more confrontational relationship with China,” said Bremmer.
A cold war between the US and China would be another shift away from globalisation, ultimately leading to less efficiency, less growth and more volatility, he said.
While there will continue to be competition between the US and China, “long term, both are much stronger when working together than when squandering opportunities and working apart,” said Huntsman.
However, he sees a “good probability” that the phase one US-China trade deal will be scrapped, or further progress delayed, as the impact of the coronavirus makes it difficult for China to meet its commitments in terms of substantially more imports from the US.
“In trade negotiations, the US needs to hold China’s feet to the fire, but these relationships need to be built going forward. There will be dislocations around technology, pharmaceutical and medical. But when I hear talk of a cold war, it’s silly and counterproductive,” said Huntsman.
Huntsman Corp’s supply chains are already largely localised, with about 95% of sales in China from products produced in China or southeast Asia, with the percentage in the low-90% range for sales in Europe. It serves the US market from US production with some exports, he pointed out.
“We don’t have large plants that export a lot. By and large we are close to the customer,” said Huntsman.
Societal shift/ACC overhaul
The chemical industry will also have to deal with changes in societal expectations, where the public and consumers have set a higher bar for corporate responsibility.
In this vein, the ACC plans to renew and refresh its flagship Responsible Care programme, focusing on health, safety and environment (HSE) in a rapidly changing political and social landscape.
“Responsible Care is about continuous improvement – not just for ACC member companies, but to the program itself,” said Chris Jahn, CEO of the ACC, in the trade group’s virtual annual meeting, noting that the last review of the programme was done in 2010.
In the past 2 years, there has been an increase in high profile accidents amid a changing regulatory and social landscape. Public expectations have set a higher bar, he noted.
“We will be asking hard questions. Responsible Care [is supposed to be the leading] environmental, health and safety programme. But is it?” asked Jahn.
“Responsible Care must be fresh, credible and valuable… Sustainability is a natural extension of Responsible Care and must drive performance and progress. Only then will perception improve,” he added.
Mark Vergnano, CEO of Chemours and chairman of the ACC board of directors, said the industry must have a forward-looking vision and do more than just commit to a renewed Responsible Care. There must be proven progress in HSE as a top priority.
“We must align around a single vision to meet a new political landscape and new expectations… We must not let the chaos of today distract from the opportunities of tomorrow,” said Vergnano.
“Customers demand progress. Society demands sustainable solutions. Everyone wants world class technologies that solve problems without causing new ones,” said Vergnano.
Details of the ACC’s renewed Responsible Care initiative have yet to be released, but it’s clear there will be a greater focus on sustainability and accountability to the public to reassure communities that the chemical industry is acting in its best interests.
“Commitment to sustainability cannot waver – no matter what’s happening in the world around us,” Vergnano said.
Joseph Chang is Global Editor of ICIS Chemical Business, a weekly publication focusing on macro trends and the analysis of drivers of chemical prices worldwide. This includes price trends, and the factors impacting these trends in both the short term, and long term.