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28 April 2020

COVID 19 – Situation of flexible polyurethane (slabstock) plants in Europe

We have updated our note outlining the current status of flexible PU foam plants in Europe with regards to the Covid-19 epidemic following an extensive round of interviews with experts in our industry.

Today’s situation can be summarized as follows:

Governments that had imposed restrictions on retail have started or are planning to progressively lift restrictions in the countries most affected by the epidemic between now and the second half of May, although in quite some countries the concrete modalities of such reopening have yet to be defined. This means that PU foam plants that were closed are in most occasions making plans to reopen. However, across Europe, May will still see production taking place at much reduced capacity due mostly to low demand and de-stocking of foam currently in warehouses.

Foam plants serving the automotive industry are either reopening or making internal preparations for imminent restarts. A few car manufacturers have reopened already in Belgium, Sweden or Slovakia, some will reopen in the week starting 27 April and most of them across Europe have set 4 May as the restart of production. This means that as of early May all foam plants serving the automotive industry will be running again, albeit at much reduced capacity. Indeed, setting aside the demand for new cars which is expected to remain very low anyway, the output of car factories and automotive suppliers will be limited de facto by social distancing rules they have to apply in their premises. Some OEMs have made public announcements regarding their anticipated production in the coming weeks. LMC Automotive are forecasting light-vehicle production to be down 75% year-on-year in Europe in May and 17% for the whole year 2020.

Foam plants serving the mattress and furniture industry generally expect production to be still very reduced in May and any improvement to be very largely dependent on the reopening of retail. We confirm our estimate from early April that production was down this month about 60 to 70% year on year. For May, we anticipate the situation to improve only slightly, with production in Europe to be down 50 to 60% compared to last year, still with important geographical variations. There are no updated market forecasts available yet for the bedding and furniture industry for the whole year, but most of our members indicated they anticipate a decline in mattress and furniture production of in a range of 15 to 25% for the year, strongly depending on their geographical location and customer structure.

As regards government support, the situation is very variable across Europe. Most countries have put in place some sort of support for temporary unemployment, tax deferrals, state-guaranteed loans or a mix thereof.

Foam plants also start reporting issues with customers delaying payments of amounts due. Such behaviour has the potential to create cash flow issues, especially in countries were support from the government is limited.