26 May 2008 00:00 [Source: ICB]
With additional reporting from Mike Nash, ICIS pricing, London
CHINA'S VAST size and the multiregional nature of its markets militate against the impact of the Sichuan earthquake on the chemical industry.
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 importance.
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 neighboring provinces have been cut. The status of chemical production at some locations is uncertain after earlier shutdowns. The earthquake has hit Sichuan's plastics processing industry hard.
PetroChina's operations in the area, including its chemical plants, have all faced disruption, said a spokesperson.
The Sichuan earthquake is understood to have destroyed 80% of the Ying Feng and Hongda phosphate fertilizer plants, leading to a likely shortage of monammonium phosphate (MAP).
China's ability to export phosphate fertilizers in the fourth quarter, easing the tight supply situation globally, has evaporated due to earthquake damage.
"We estimated that Sichuan province can produce 1.5m tonnes of MAP," said one global supplier on the sidelines of the International Fertilizer Industry Association conference last week.
With extensive damage to three plants, it was expected that lost output could be at least 700,000 tonnes to the end of the year, the source added.
"Damage to the mining infrastructure, as well as the rail system, will mean that rock supply to other parts of China will be adversely impacted," said the source, since Sichuan also produces around 10m tonnes/year of phosphate rock, a feedstock used in the production of phosphate fertilizers.
Aftershocks have continued to cause great concern, leading to production plant closures as a precautionary measure.
Production is slowly being resumed at refineries and chemical 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 impact on others.
Polymers supply has tightened across China because of the quake.
Melamine prices are 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 (€13bn) price tag has already been put on the disaster, and it is likely that that figure will 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 reexport trade along with rising fuel and energy costs. The macroeconomic impact would have been much greater if the disaster had occurred in the east or the south of the country.
That said, however, there are the first indications that producers might be reassessing project plans for Sichuan in the light of this major earthquake.
PetroChina may scrap plans to build a 10m tonne/year refinery and 800,000 tonne/year ethylene plant in the province, said a company official. It signed a framework agreement with the Sichuan provincial government for the projects in March 2007.
Other plans for this vulnerable area, and possibly for other parts of China, will, no doubt, be scrutinized more closely.
It has been suggested that project approvals in earthquake-prone areas might be more difficult to obtain in the 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 has 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 on ICIS connect. You can also send photos and video directly to us at icisnews.asia @icis.com or email@example.com or firstname.lastname@example.org.
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