More than 3m tonnes of Chinese polyethylene demand at risk from coronavirus

Business, China, Company Strategy, Economics, Polyolefins

 

 

By John Richardson

THE GOOD news is that medical experts believe the novel coronavirus (2019-nCoV) outbreak will follow the path of SARS and die down by April or May at the latest when warm weather usually arrives in China. Coronaviruses in general, and SARS is part of the same family as this latest outbreak, don’t like warm weather.

The even better news would be if Beijing gets the virus under control before the end of the first quarter. This is what everyone is obviously hoping for.

Even if the virus is controlled in Q1 – which would involve the rise in the number of new cases peaking pretty soon as there will be a long lag effect before confidence fully returns to Chinese consumer spending and global supply chains return to normal – there will still be a loss of petrochemicals demand in 2020 versus earlier forecasts.

Why this is unavoidable relates to the Lunar New Year Holidays being a peak consumption season in China. Focusing as usual on the implications for polyethylene (PE) demand, think of all the lost packaging demand from the many millions of people that won’t have bought chocolates and other luxuries to take to their relatives.

During the biggest annual human migration in the world all the missing bus, train and car journeys will mean less consumption of drinks and snacks. Drinks and snacks are often packaged in PE in some way.

Will the government get this crisis under control within the next few weeks? Because China is able to exert so much central control the answer could be yes. Strictly enforced quarantine regulations apply to some 60m people.

But because China can exert so much central control the answer might be no. What if local officials, worried about getting into trouble with Beijing, don’t take the necessary swift decisions necessary to bring the virus under control?

See the above graph which assumes that we have to wait until April for the warm weather to arrive as the government will be unable to contain the spread of the disease. It would then take Chinese consumer demand and global supply chains until Q3 to fully recover.

My assumption on PE is that with packaging demand accounting for around 50% of final consumption in China, a lot of the lost demand from curtailed Lunar New Year spending cannot be recovered because, as I said, this is  peak consumption season. There will also be reduced demand for the PE needed to manufacture and package Chinese exports.

Around a quarter of my original estimate for 2020 demand is at risk, covering the months from February until April. That would be 9m tonnes based on my 36m tonnes estimate for 2020. If you then say packaging demand is down by half over the three months this would amount to 2.25m tonnes of lost consumption.

Add 800,000 tonnes for lost exports etc. and you get to my guesstimate of 3.3m tonnes of lost demand – 8.6% lower than my base case. Thanks to fellow blogger Paul Hodges for getting to this guesstimate, and also the thinking of half a dozen other industry contacts.

If the ideal scenario of the virus being under control by the end of March is realised, lost demand will be lower than this. Or perhaps the impact will be worse if the government fails to bring the outbreak under control and the warm weather only arrives in May or later.

PREVIOUS POST

Coronavirus: Global polyester chain faces major production cuts, shortages and cost increases

07/02/2020

By John Richardson A GREAT example of the extent to which global supply chains a...

Learn more
NEXT POST

Coronavirus threatens 2.9m tonnes of China PP demand as uncertainties increase

14/02/2020

By John Richardson THE RUMOURS travelled around my contacts, and I am sure many ...

Learn more
More posts
China: temper your expectations of a H2 recovery for supply as well as demand reasons
29/03/2020

By John Richardson CHINA IS gradually getting back to work, but only gradually because the governmen...

Read
Petrochemical feedstock purchasing managers: What to think about and what do next
27/03/2020

By John Richardson ALL THE old assumptions about how oil, feedstock and petrochemicals markets work ...

Read
Vital work to maintain petrochemicals supply for essential services must continue
26/03/2020

By John Richardson INDUSTRY associations around the world are lobbying governments about the importa...

Read
Polyethylene: How to plan sensibly as we face threat of new Global Depression
25/03/2020

By John Richardson I SINCERELY want to help you guys. That’s what I am here for. To this end, here...

Read
Coronavirus may take as much as two years to be brought under control
22/03/2020

By John Richardson The only honest answer is that none of us know how events will turn out because o...

Read
Coronavirus: The new ten-point guide for the petrochemicals industry
20/03/2020

By John Richardson EARLIER THIS month I provided you with a ten-point guide for the impact of corona...

Read
Container freight shortages will lead to regional petrochemicals trade and supply shortages
17/03/2020

By John Richardson THIS excellent chart highlights the lingering effects of the coronavirus outbreak...

Read
European polyethylene and coronavirus: Panic buying versus the real demand outlook
16/03/2020

By John Richardson NOW that the epicentre of the virus has moved to Europe, we need to think through...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more