Petrotahlil - Disruption in China caused by the coronavirus is hitting domestic chemical production as the Lunar New Year break is extended amid restrictions on movement of goods and people.
As the government battles to contain the spread of the virus, there are reports that logistical problems, staffing shortages, and rising inventories are forcing chemical companies to cut production.
Demand is also being hit as economic activity is curtailed in some areas and downstream industries delay post-holiday restarts.
China is hugely important as a global chemical producer, with new analysis by ICIS (see bottom graph) showing that it accounts for more than half of global capacity for several product groups, including the polyester chain, purified terephthalic acid (PTA), polyvinyl chloride (PVC), methanol, and methyl tertiary butyl ether (MTBE).
Any widespread restrictions on output from plants would disrupt domestic and export markets, though downstream domestic demand is also likely to be lower if customer industries face similar disruption.
This week ICIS has reported disruption to chemical production across several value chains.
China’s polyolefin suppliers have cut their post-holiday production due to logistics restrictions amid authorities’ efforts to contain the coronavirus outbreak.
Domestic inventories are high as the plants did not stop production during the Lunar New Year holiday period, which started on 24 January, with most storage warehouses now full.
Some are being forced to rent warehouses as the resins could not be delivered to other provinces amid restrictions on domestic transportation, as well as reduced manpower as the holiday was extended in various provinces.
Downstream enterprises could take longer to resume operations amid the outbreak, raising the possibility that some polyolefin plants will have to shut down, a Sinopec source said.
Jiangsu Sanmu Group has delayed a post-maintenance restart at its 280,000 tonne/year epoxy resins plant at Yixing. This is to comply with a directive from Jiangsu provincial authorities that businesses should not resume operations before 10 February.
Zhejiang Weitai Rubber Company has delayed restart of its 100,000 tonnes/year styrene butadiene rubber (SBR) plant at Zhejiang, also until 10 February.
Production of methyl isobutyl ketone (MIBK) has been curtailed in China, with plants extending their holiday shutdown.
Restrictions on road transport have affected delivery to customers for Sanjiang Fine Chemical which has taken one of two lines at its 60,000 tonnes/year ethylene oxide plant offline in Zhejiang.
Around 500,000 tonnes/year of epoxy resin capacity remains offline in Jiangsu province amid the extended holiday shutdown, creating opportunities for exporters.
China styrene monomer prices fell sharply this week amid delays to downstream plants restarting post-holidays and ample supply.
Isopropanol (IPA) production has been delayed at Shandong Dadi Supu Chemical (Super Chemical)’s 100,000 tonne/year plant in Jiangsu.
METHANOL, PTA FUTURES PLUNGE
China’s methanol futures slumped on 4 February due to the bearish market sentiment on the coronavirus outbreak.
Futures values plunged and reached the daily movement limit before noon, which is 7%.
Contract prices of purified terephthalic acid (PTA) futures on the Zhengzhou Commodity Exchange plunged by the daily limit to yuan (CNY) 4,470/tonne on 3 February, the first trading day after the extended Lunar New Year holiday.
REFINERIES CUT RATES
Chinese refineries are lowering their operating rates sharply as fuel demand takes a hit from the coronavirus outbreak.
Official data shows an 84% drop in travel during this year’s Lunar New Year.
Sinopec has implemented 10-35% production cuts on refineries in Shandong, Guangdong, and Hubei, depending on local demand and logistics, according to refinery sources.
According to John Richardson, ICIS senior consultant, Asia, China polyethylene (PE) plants might run at lower rates but probably would not shut altogether as closing associated crackers entirely is very costly.
Lower China production is not going to lead to more imports because of:
- Insufficient demand
- High PE inventories
- Reported shortages of customs officers and stevedores at ports in China because of the restrictions on travel
“The refinery cuts will, in turn, mean less feedstock for the petrochemical plants but downstream the petrochemical plants will lack demand because a lot of the workers won’t be at work running the plastic processing plants," said Richardson.
"So petrochemical plants will be squeezed both by lack of feedstock and by lack of demand.”
In a blog post, Richardson also points out that the impact on global markets of any fall in China's economic growth will be much more severe than during the SARS virus of 2003.
Back then, China accounted for just 4% of the global economy compared with 17% in 2019.
China's consumption of polymers has grown from 22% of global demand in 2003 to reach 43% this year, according to the ICIS Supply & Demand database.
As of 3 February, China has more than 20,000 of confirmed 2019-nCoV cases, with the death toll at 425.
Twenty-four other countries have confirmed cases of infection, including Japan, Germany and the US.
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