The COVID-19 pandemic has led to widespread lockdowns, which, in many countries, have helped to slow the virus’ spread. But there have been downsides to those efforts: Supply chain disruptions, logistics slowdowns, unavailability of the workforce, and reduced demand have stalled industrial activity globally and impacted many industries—including all end-use industries of metalworking fluids.
The market for these fluids—which are used in industries that work with metals and employ processes such as cutting, machining, stamping, bending, grinding, and heating of metals, along with lubricating and cooling in different metalworking processes—is governed by several diverse applications. They include transport equipment, machinery, primary and fabricated metals, and more; therefore, the market is largely driven by industrial output and consumer trends.
Kline & Company has developed a scenario-based approach to analyze metalworking fluid consumption in 2020 under different scenarios. These scenarios have differing assumptions based on the length and severity of clampdowns/lockdowns in 2020 and the subsequent rates of recovery.
Currently, different countries are at different stages of the pandemic and have adopted distinct countermeasures. Therefore, the pandemic’s degree of impact varies across the separate application segments in different countries. Europe, which accounted for approximately 28% of total global demand for metalworking fluids in 2019, is the worst-hit region. The region’s manufacturing purchasing manager index (PMI) reached an all-time low of 33.4 in April, the month of maximum lockdowns in most European countries. The Americas accounted for roughly 30% of total global demand for metalworking in 2019. Within the region, the United States and Brazil are the most affected countries, ranking first and second, respectively, in the number of global COVID-19 infections as of the end of July 2020. Asia-Pacific, the largest consumer of metalworking fluids globally, accounted for approximately 40% of total demand for metalworking fluids in 2019. In this region, China’s economy suffered greatly during the lockdown period; this was reflected in its gross domestic product contraction by 6.8% year-on-year during the January-March period in 2020.
Change in Global Metalworking Fluids Consumption by End Use, 2019-2020
Globally, the largest impact on metalworking fluids demand has been seen in the transport equipment industry, which accounted for nearly 44% of total demand for these fluids in 2019. The automotive industry, which was already financially stressed from technological upgrades, the need to innovate, and the development of alternative powertrain technologies including electric vehicles, is the hardest hit by the crisis. The pandemic forced most original equipment manufacturers (OEMs) to temporarily halt production at several of their manufacturing sites globally, leading to reduced demand for metalworking fluids.
The disruptions to industrial production have also negatively impacted metals manufacturing but to a lesser extent than the transport equipment industry. Metals are considered a process industry and were therefore exempt from complete shutdown rules in most countries. However, this has led to an inventory backlog, primarily for intermediate and semi-steel products, because of reduced demand from downstream industries, especially automotive and construction. China was the main contributor to the inventory backlog; as the world’s largest producer of aluminum and steel, it continued to expand output even as the country was in lockdown.
The machinery and fabricated metal products industries have a highly integrated global supply chain. Therefore, logistics slowdowns due to the pandemic have continued to affect the supply of components and forced production cuts in the industries.
At the beginning of 2020 and before the COVID-19 crisis, Kline’s forecast showed a nearly stable global metalworking fluids market for the period 2019 to 2024. However, post-COVID-19, the outlook is unclear due to the uncertainty surrounding a possible second wave of infections. The recovery path will depend on each country’s efforts to revive the economy, including the size of stimulus packages and the effective implementation of short-time work programs. China is the first country to come out of the crisis and is working toward full normalization of economic activity. As the world’s second-largest economy, its contribution to global recovery will be enormous. Meanwhile, in July 2020, the European Union (EU) announced a deal among member states for a massive stimulus plan; it will see the EU issue debt of EUR 750 billion (USD 882 billion).
Overall, the manufacturing sector is expected to show a quicker rebound than many other sectors, but supply chain disruptions will continue for the rest of 2020 and perhaps into 2021. Although many OEMs have resumed operations, a quick rebound in production is unlikely, as workers’ safety protocol compliance, plummeting demand, and underutilized capacity are impacting production levels. Additionally, lower confidence in the economic outlook is expected to outlast the crisis, making consumers more cautious about discretionary spending.
In addition, trends such as better housekeeping, recycling, use of longer-life metalworking fluids, and other technological changes are expected to further slow down the demand growth of metalworking fluids globally.
In the long term, the COVID-19 crisis is expected to give a push toward greater innovation and displacement of manual labor by automation and digitalization across industries. It is also expected to further strengthen the focus on health and safety in various industries.
This article draws insights from Kline's recently published study: Metalworking Fluids: Global Market Analysis and Opportunities, which includes an analysis of Impact of COVID-19 on Metalworking Market.
To learn more about the global Metalworking Market and the impact of COVID-19, request access to our recently held webinar.
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