Severe floods in China aggravate oversupply of some petrochemicals

Author: Fanny Zhang

2020/07/23

SINGAPORE (ICIS)--Heavy rains in various parts of China have caused severe flooding that has been disrupting logistics operations, thereby exacerbating oversupply of some petrochemicals, as well as oil products.

Flooding has hit twenty-seven provinces mainly in the central and western regions of the country since June, including the petrochemical hubs of Shandong, Jiangsu and Hubei.

Direct economic loss from the flooding from 1 June to 22 July stood at around Chinese yuan (CNY) 116bn ($17bn), with some 45.5m people affected and more than 2m people evacuated.

The combined number of deaths and missing people stood at 142 for the period, according to data from the Ministry of Emergency Management.

Among the hardest hit provinces are Jiangxi and Anhui in central China, where water levels in major rivers like the Huai River overflowed and several dams collapsed.

Fuel demand for transportation was severely dampened, prompting some refineries with high inventories, including those operated by Sinopec in Wuhan, Hubei and in Qingdao, Shandong to cut output by 4%-6%, ICIS senior analyst Anita Yang said.

Prior to the output cuts two weeks ago, the refinery in Wuhan was running at 90% of capacity, while that in Qingdao was operating at 113%.

Refineries also face problems in shipping out cargoes from their sites, aggravating the inventory pressure from refineries as fuel markets have already been in oversupply, she added.

In the textile and polyester fibre industries, producers have lowered plant operating rates partly due to the recent heavy rain in east China, said ICIS analyst Jimmy Zhang.

“Due to the coronavirus outbreak, [global] clothes consumption has been severely impacted, resulting in historical high inventories in cloth and fibre industries,” Zhang said.

“Lowered operating rates should relieve the serious oversupply in textile and polyethylene terephthalate (PET) fibre industry,” Zhang said.

“However, this has caused more serious oversupply in upstream purified terephthalic acid (PTA) industry, especially after the new huge capacity expansions from Hengli Petrochemical,” he added.

Hengli Petrochemical started up its 2.5m tonne/year No 5 PTA plant in late June.

For aromatics products like benzene, the oversupply in China is being aggravated by logistics issues caused by the flooding while offtake was low on poor demand amid the coronavirus pandemic, ICIS analyst Jenny Yi said.

On economic front, rising inflation and stagnant construction are immediate results from the floods.

“Outdoor construction projects are halted and some manufacturing are interrupted by transportation disruption of raw materials,” according to Chinese brokerage GuoTai Jun’an in a research report.

The brokerage forecasts China’s infrastructure investment in the third quarter to contract by 0.3-1.2% year on year.

China's rainy season typically occurs in June to September.

Focus article by Fanny Zhang

($1 = CNY6.99)

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