China petrochemical industry faces disruption amid virus outbreak

Author: Pearl Bantillo

2020/01/30

SINGAPORE (ICIS)--Production and trades in China’s petrochemical industry will be disrupted following extensions of the Lunar New Year holiday period as the country struggles to contain a deadly epidemic.

Initial optimism about post-holiday recovery in demand was quashed as the death toll from the novel coronavirus 2019-nCoV believed to have originated in Wuhan city continued to climb since December 2019.

Wuhan, which has an 11m population, is the capital of China’s central Hubei province.

A petrochemical joint venture between Chinese petrochemical giant Sinopec and South Korea’s SK Global Chemical is operating in Wuhan, according to ICIS Supply and Demand database.

No update on plant operations could be obtained at the time of writing.

As of 29 January, the Wuhan virus has killed 170 with confirmed cases surging to more than 7,700 in China alone.

Cases were also reported in various countries in Asia, Europe, the Middle East and in North Americas.

Chinese authorities have extended the week-long Lunar New Year holiday, which was supposed to end on 30 January, up to 2 February. In some cities, the holiday was extended for another week or two.

In Hubei province, work holiday would last until 14 February.

Production at local factories is highly vulnerable given heavy reliance on migrant workers, who would not be able to return immediately to their work place amid travel bans implemented as a precaution against human-to-human transmissions of the new strain of coronavirus.

It is another blow to China’s manufacturing sector already weakened by a prolonged trade war with the US, further clouding the growth prospects of the world’s second-biggest economy.

The country’s average economic growth in 2019 has slowed to 6.1%, the slowest pace of expansion recorded since 1991.

Shipping restrictions at selected local ports, including Changjinkou and Lianyungang, as well as some terminals in Guangzhou, are in place, disrupting cargo flows in and out of the country.

Normal operations at these ports are expected to resume in mid-February.

Consequently, cancellations of petrochemical cargoes in Asia were noted this week for northbound and various intra-northeast Asian routes.

China’s overall consumption in 2020 is expected to be adversely affected by the 2019-nCoV outbreak, reminiscent of the ill effects of the severe acute respiratory syndrome (SARS) epidemic on the economy in 2002-2003.

SARS broke out in southern China between November 2002 and July 2003, with a global death toll of nearly 800.

Against the prospect of weaker demand, petrochemical producers facing a strong build-up in inventory would likely opt to curb output.

The services sector - a bright spot in China’s economy amid the slowdown in manufacturing - may take a heavy hit as was the case during the SARS epidemic, according to Japan-based brokerage Nomura Research in a note dated 24 January.

“Although the Chinese government has ramped up forceful measures to prevent the disease from spreading, we see a risk that the situation will worsen in coming months,” it said.

Concerns about weakening demand have been weighing on the global crude futures, which, in turn, dragged down prices of naphtha - the main petrochemical feedstock in Asia - and of aromatics such as benzene, paraxylene and mixed xylenes.

The outlook appears bleak across commodities markets as the world welcomes the Year of the Rat in the Chinese calendar.

Focus article by Pearl Bantillo

Additional reporting by Yaw Min Jie, Jasmine Khoo, Yuanlin Koh, Izham Ahmad, Nurluqman Suratman, Jackie Wong, Judith Wang, Clive Ong, Helen Lee, Melanie Wee and Keven Zhang 

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