SINGAPORE (ICIS)--Petrochemical restocking in China this year will not be strong as in the past as the usual heavy manufacturing disruption that accompanies the Lunar New Year holidays may not happen, with travel curbs in place to ward off another wave of coronavirus infection in the country.
Migrant labourers will have to stay put in cities as travelling becomes too costly amid strict state-sanctioned protocols, as growing coronavirus cases in the northern region prompted lockdowns of selected cities and areas in January.
Among the affected provinces are Hebei, Heilongjiang and Jilin, as well as the Chinese capital of Beijing.
The possibility of tighter logistics controls spreading to other parts of the country make petrochemical market participants reluctant to have too much inventory, which will mean extra storage costs.
To prevent a possible second wave of the outbreak, Chinese authorities are requesting people to avoid “unnecessary travels” during the week-long Lunar New Year holiday on 11-17 February.
Prospective travelers are being required by the National Health Commission (NHC) to have a virus-negative test result within seven days before their departure date; take virus tests every seven days while away; and to go on a 14-day isolation upon return to their hometowns.
In a normal year, migrant workers return to their hometowns in rural areas in droves for the holidays, and most small petrochemical factories shut down operations, while refineries and crackers typically cut production.
Some of these workers tend to switch jobs or stay home longer than a week, resulting in post-holiday labour shortages at some factories.
“We think that the holiday-mode [this time] would be just shorter than normal … short-distance travel would replace long-distance ones. Demand weakness during the holiday would still be the case for most commodities,” said Zhang Junfeng, senior analyst at brokerage house China Merchant Securities.
Restocking by petrochemical market players typically begins two to three weeks before the Lunar New Year holidays amid general expectations of a post-holiday demand pick-up.
China’s restrictions on holiday travel in 2021 will likely mean minimal disruption to factory operations, which could create a strong build-up in supply, negating the immediate need to restock, market sources said.
Some small plants whose monthly intake of 10 tonnes of acrylonitrile-butadiene-styrene (ABS) and polypropylene (PP) are looking at shutting down operations no more than seven days, said a Guangdong-based trader.
Market inventories are sufficient at the moment and some big users are re-selling some cargoes to traders, he added.
“We choose to be fast-in and fast-out [in our market dealings] because logistics control measures are changing quickly. We have to keep flexibility,” said a Zhejiang-based plastics trader.
In the eastern Shandong province, refineries are being vigilant in their delivery process, requiring a virus-negative test result for truck drivers - taken within three days before entering their complex to load up cargoes.
As of 24 January, China has nearly 100,000 confirmed coronavirus cases, with 4,810 deaths, according to the World Health Organization (WHO).
Focus article by Fanny Zhang
Photo: At Tianjin port in north China - 11 January 2021 (Source: Xinhua/Shutterstock)
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