News Code : 43915

Petrotahlil - Most petrochemical makers in China are expected to cut production amid a build-up up of inventory and expectations of weaker consumption in the months ahead amid the unabated spread of the deadly Wuhan coronavirus.

While financial and commodities markets in the country re-opened on 2 February after a prolonged Lunar New Year holiday, most downstream factories are still closed on government orders until 10 February.

“Most of the integrated complex, such as the producers from Sinopec and PetroChina are running normally. But due to the transportation issues, some of non-integrated factories might cut back [on production] due to the shortage of feedstock, for instance, the methanol-to-olefin producers,” said Amber Liu, head of ICIS petchem analytics in Asia.

Small and medium-sized local plastic processors could delay restarting their plants, she said.

Fears of contagion have kept people at home, resulting in a sharp decline in consumption during the holiday, Liu said.

China celebrates the Lunar New Year holiday for a full week. In 2020, the holiday started on 24 January and was supposed to end on 30 January, but was extended to 2 February amid the virus outbreak.

Government-mandated curbs on transportation across China in a bid to contain the novel coronavirus (2019-nCoV), which is believed to have originated in Wuhan, prevent migrant workers from returning to their work sites, disrupting both production and delivery of goods within the country.

Wuhan, the capital of Hubei province in central China, has been in lockdown since 23 January, with businesses in the province not expected to resume operations until 14 February.

Different degrees of restrictions apply to inter-province and provincial highway transportation systems. Trucks on the road are scarce although railway transport is largely stable, industry sources said.

Temporary closures of some ports are also affecting cargo traffic in and out of China.

For companies unable to fulfill export obligations amid the coronavirus outbreak, China’s Council for the Promotion of International Trade (CCPIT) is offering force majeure certificates.

A number of soda ash producers in China have declared force majeure on supplies as plant operations will not be able to resume until next week.

Some market participants were hoping that transportation and other logistics issues within the country could be resolved by mid-February, but much will depend on how successful the government will be in containing the epidemic, which has surpassed the global number of infection of the severe acute respiratory syndrome (SARS) virus in 2002-2003.

As of 4 February, China has more than 24,000 confirmed 2019-nCoV cases, with the death toll at 490.

Over 20 other countries have confirmed cases of the infection, including Japan, Germany and the US.

China’s major polyolefin producers, which are currently saddled with high inventory as their plants have not stopped production during the Lunar New Year holiday, have decided to cut production in February.

The combined polyolefin inventory of PetroChina and Sinopec on 3 February stood at 1.15m tonnes, nearly double their pre-holiday stocks of 620,000 tonnes.

Some of Sinopec’s polyolefin plants, including those in Zhenhai, Yangzi and Qingdao, have reduced average operating rates to about 80% at the start of the month from full rates previously, and may maintain the current rate of production until 10 February, a company source said.

“I believe the PE demand is likely [remain] sluggish in February,” said ICIS analyst Liu, noting that end-users in the packaging sector will prefer to use up their inventory of finished products instead of beefing up production.

For polypropylene (PP), surging global demand for face masks as protection against 2019-nCoV would boost production of some grades.

“Supply of PP fiber grade and transparent polypropylene (TPP) grade will increase, to meet the increasing demand for medical protective equipment, such as masks, injection syringe,” ICIS senior analyst Joey Zhou said, but added that other PP grades will fall.

The proportion of PP’s usage for medical accessories, however, is too small compared with overall consumption to have a significant impact on the market.

A tonne of PP fiber is able to produce about 250,000 protective masks, while a tonne of transparent PP could produce about 500,000 medical disposable syringes.

“However, because of the ample supply due to high inventory after [the] holidays and new capacities, other PP grades will still be long in Q1 2020,” Zhou said.

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Source :ICIS

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