INSIGHT: China chems face consequences of quake

15 May 2008 16:29  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--China’s vast size and the multi-regional nature of its markets militate against the impact of the Sichuan earthquake on chemicals.

Yet the devastation wrought in the province has hit the sector hard bringing major logistics and production problems.

As the human tragedy unfolds the speed at which survivors can be rescued and infrastructure links restored has proved to be of paramount imortance.

ICIS news has reported this week on the on-going crisis. China’s reaction has been swift and seemingly as effective as might be expected in such difficult circumstances.

But rail, road and telecommunications links to neighbouring provinces have been cut. The status of chemicals production in some locations is uncertain after earlier shutdowns. The earthquake has hit Sichuan’s plastics processing industry hard.

Two fertilizer plants operated by Ying Feng Co and Chuan Xin Yun Fang collapsed in the quake trapping workers and releasing deadly ammonia.

A company spokesman said that PetroChina’s operations in the area, including its chemicals plants, had all faced disruption.

Aftershocks have continued to cause great concern leading to production plant closures as a precautionary measure.

China’s Seismological Bureau said that by Thursday morning 119 aftershocks, measuring over 4 on the Richter scale, had been felt in Wenchuan county, which was hardest hit by Monday’s quake.

Telecommunications links, however, between the county and the rest of Sichuan had been restored.

Production is slowly being resumed at refineries and chemicals plants across the province but it is bound to take time before vital transport links are repaired and product and raw materials are able to flow freely again.

Initial reports have suggested considerable impact on some local China markets but little affect on others.

Polymers supply has tightened across China because of the quake.

Melamine prices were expected to soar following the disaster as major Chinese producers Sichuan Chemicals and Sichuan Meifeng were forced to halt production.

Sichuan province is home to numerous gas based fertilizer plants and the government had ordered shutdowns as a precautionary measure.

Melamine markets in Europe and the US were affected by closures illustrating the increasing reliance of global markets on key production locations..

A $20bn price tag has already been put on the disaster, and that is likely to rise.

Yet economists and others see little in the way of a macro or long-term impact.

Most (economic) concerns remain focused on the continued weakening of China’s re-export trade and rising fuel and energy costs. The macro-economic impact would have been much greater if the disaster had occurred in the east or the south of the country.

That having been said, however, there are the first indications that producers might be re-assessing project plans for Sichuan in the light of this major earthquake.

On Thursday, a PetroChina official said the company may scrap plans to build a 10m tonne/year refinery and 800,000 tonne/year ethylene plant in the province. It signed a framework agreement with the Sichuan provincial government for the projects in March last year.

Other plans for this vulnerable area, and possibly for other parts of China, will, no doubt, be scrutinised more closely.

It has been suggested that project approvals in earthquake prone areas might be more difficult to obtain in future. Enforcement is down to China’s Ministry of Environmental Protection.

There is no indication, as yet, that some plants in the earthquake zone might have been more vulnerable than others, but a longer-term tightening of construction and safety rules can be expected.

Have you personally or your business been impacted by the earthquake in China? If you have any information or thoughts you would like to share, post your comments or photos on the ICIS China Earthquake forum. You can also send photos and video directly to us at icisnews.asia@icis.com or icisnew.europe@icis.com.

By: Nigel Davis
+44 20 8652 3214

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