China increases the pressure on chemical producers

Chinese authorities are tightening controls on chemical shipping ahead of a big Communist Party meeting that takes place next month in Beijing. The new measures will add to the pressure that chemical and pharmaceutical producers have faced in China throughout 2017.

Authorities in the coastal province of Jiang­su, home to the city of Nanjing, have ordered companies to suspend the shipment of chemicals considered dangerous in the second half of October. At that time, Beijing will host the National Congress of the Communist Party of China, a key meeting held every five years during which the country’s new leaders are selected. The Jiangsu order will affect producers in major chemical industry parks such as Zhangjiagang, where several foreign companies have manufacturing plants.

Salmon Lee, an analyst at the petrochemical consulting firm PCI Wood McKenzie, says the order is already being felt. ”This has led to confusion among chemical and logistics companies, as well as a spike in spot prices for some products as players rush to bring forward loading/unloading dates or buy more spot material to cover any possible shortfall,” he wrote in a note to clients.

The disruption is only the latest to be experienced by China’s chemical industry so far in 2017. The result has been shortages of certain materials and higher costs for manufacturers, such as pharmaceutical companies, that use chemical raw materials and ingredients.

Rising pollution in China is one cause of the disruptions. Inspectors throughout the country have started to strictly enforce environmental regulations, leading to the temporary or permanent closure of dozens, if not hundreds of chemical plants.

Simultaneously, cities throughout China have accelerated efforts this year to relocate chemical plants that have been enveloped by urban sprawl. Thousands of plants will likely face eviction orders in coming months and will cease production while they move.

Even before the new restrictions on shipping were announced, chemical producers were concerned about the challenges posed by handling and storing chemicals legally in China.

The European Union Chamber of Commerce in China noted in a white paper earlier this month that China is short of warehousing and shipping capacity compliant with current industrial safety rules. The rules were tightened following an explosion at a dangerous goods warehouse in Tianjin in 2015.