SINGAPORE (ICIS)--A quick recovery for China’s petrochemical industry is out of the question as it is emerging from a prolonged lockdown to contain a deadly coronavirus, while the rest of the world has just started the process of shutting themselves in to stem the tide of infection.
Most of China’s end-products are meant for exports, demand for which could continue to dissipate given a strong likelihood now of a global economic recession.
“The problem has … morphed for China from it being unable to supply the rest of the world to no demand for its products from the rest of the world,” ICIS senior Asia analyst John Richardson said.
China’s manufacturing sector, already hit by a prolonged US-China trade war since mid-2018, posted a sharp contractions in the first two months of 2020 on the government’s pandemic-containment measures.
“[It] seems certain that the [petrochemical] industry is heading for its first year of negative growth in China since 2008,” Richardson said.
As the world’s second-biggest economy stirs back to life after a prolonged inactivity caused by a nationwide lockdown, it finds itself saddled with high inventory of most petrochemicals as domestic consumption has severely weakened.
For polyolefins, inventories of major local producers Sinopec and PetroChina declined this week but remained high at 1.125m tonnes.
“China is gradually getting back to work, but only gradually because the government is trying to carefully calibrate the release of tens of millions of people from quarantine without triggering a second wave of infections,” Richardson said.
Confirmed coronavirus infection in China appeared to have peaked around mid-February, with the daily increase in cases in late March was largely imported.
As of 26 March, the country - from which the outbreak emerged - has a total of 81,961 confirmed cases with the death toll at 3,293, according to the World Health Organisation (WHO).
Italy comes in second with the highest number of infection, followed by the US.
“If there is no immediate big secondary pick-up in infections, we can therefore expect a good recovery in Chinas’ domestic-for-domestic petrochemicals demand during the next few months,” he said.
The novel coronavirus is believed to have emerged in China’s central city of Wuhan and has since infected nearly half a million people across more than 190 countries/territories/areas.
But hefty demand losses early in the year may not be recovered.
“The size of the hole created in demand during the height of the lockdown period should not be underestimated. Chinese GDP was between minus 10% and minus 20% in January-February,” ICIS’ Richardson said.
“No amount of recovery can therefore possibly compensate for such a sharp downturn. Petrochemicals demand will simply have to be lower during the full-year 2020 compared with 2019,” he said.
Focus article by Pearl Bantillo
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