coronavirus outbreak supply chain disruption worsens

Hello, come to consult our products !

Supply chain disruption from the clampdowns on the spread of the coronavirus will cause major headaches for chemical producers in the coming days and weeks.

News media reports of the indefinite shutdown of one of the world’s largest car plants, in Ulsan, South Korea, even the impact in China on luxury goods maker Burberry, demonstrate the extent and the potential scale of the problem if travel and other restrictions persist.

If there is a return to work next week, a scenario that seems to be increasingly unlikely, then longer-term disruption can be avoided. However, estimates for the peak of the outbreak are being pushed out further, possibly into March.

Producers in China are having difficulty getting product to market. Transportation curbs and orders by local governments for businesses not to resume before 10 February at the earliest, have disrupted supply chains and stopped migrant workers from returning to plants.

Some producers outside China have destocked on concerns that they will have to cut back if exports to the major markets in China fail to recover in the coming weeks.

The interactive chart below shows how important China consumption is in terms of global output for the major petrochemicals and plastics.

The question now is how best to deal with the supply chain problems on the ground while balancing production and stock building for the upturn in demand when it eventually comes.

The situation is fluid with the knock-on impact of restrictions on the movement of people and materials becoming more widely apparent.

Downstream from ethylene, for instance, products like polyethylene (PE) and ethylene oxide (EO) are among the hardest hit because of their disproportionate reliance on road transport

Plastics converters had shut down their operations for the Lunar New Year holiday period and extended closures will impact the way in which demand is able to bounce back when the peak of the virus outbreak and the period of contagion has passed.

Operating rates at crackers in Asia could weaken further as the downstream market slowdown persists.

Not all products are impacted immediately but it should be remembered that the sharp downturn in chemicals production brought about by the 2008/09 financial crisis was driven by shutdowns and widespread disruption of important end user markets for chemicals, specifically automobiles, construction and electronics, in the teeth of the financial storm.

Disruption of the connectedness of domestic China and regional east Asia markets will have some knock on effect globally.

For China’s crackers, feedstock naphtha supply is expected to tighten because domestic refineries have cut back production given the impact of the coronavirus outbreak on fuel demand and distribution.

Upstream petrochemical producers in China would expect demand to return after the Lantern Festival, or Spring Festival, which runs for a week following the Lunar New Year holiday.

But now the average operating rate of downstream factories is estimated at about 40% because of the lack of workers until the end of February

suggests about 1.5m tonnes of PE demand may be lost because of the coronavirus outbreak – if it can be controlled and downstream industries get back to a 70-80% operating rate by the second half of march. China is estimated to have consumed 35m tonnes of PE in 2019.

Demand for non-durable and durable goods might be expected to pan out differently as the outbreak continues to be controlled.

Packaging, for instance, is such a big end use for PE that it is likely to be impacted most severely in the short term.

Polyethylene and polypropylene demand will fall but might be expected to recover quickly as freer movement of people, goods and services is possible.

The fall in demand for PE and PP from packaging, fast-moving consumer goods (FMCG) and automotive markets is expected to be most severe.

Some municipal governments in China have called for the shutdown of all restaurants and stores except supermarkets and pharmac

Post time: Feb-10-2020