Recovery is slow for the chemical industry in China

Government-sponsored infrastructure investment is a silver lining for Chinese chemical manufacturers, but overall, China’s chemical sector continues to suffer from the lockdown and subsequent economic slump caused by the COVID-19 pandemic.

On May 27, China’s National Bureau of Statistics (NBS) released data for the first four months of the year showing that the average profit of major companies in the country’s 41 industries declined by 27% compared to the year-ago period. Among them, chemical manufacturing had the fourth-worst performance—after metallurgy, oil and gas exploration, and auto production—with a decline of 48%.

The metallurgical and auto industries began to shrink last year, partly as a result of the trade war with the US. But China’s chemical sector kept on expanding, and even during the COVID-19 lockdown in late January and February, many chemical plants kept operating.

Ironically, that perseverance is a problem today, as products made earlier in the year now fetch lower prices. “Many enterprises stocked their material in January at a higher price, but the epidemic, economic shutdown, and diving oil prices have caused dramatic price cuts in most chemical products,” says Ye Yingmin, head of the Beijing-based consulting firm Chem1.

And although China is recovering from the pandemic, its global customers are lagging behind, notes Liao Ying, a senior executive at Xianglong Logistics, a Chinese chemical storage and transportation provider. “In March and April, all of our warehouses in major ports were fully packed by products scheduled for export but unable to be shipped,” Liao says.

Pang Guanglian, deputy secretary general of the China Petroleum and Chemical Industry Federation (CPCIF), which represents all of China’s chemical enterprises, reports gloomier data than the NBS for the first 4 months. The country’s chemical sector realized about $460 billion in revenue, a 14% decline, but a drop in profits of 82%. CPCIF’s statistics cover a wider swath of the chemical industry than NBS’s.

April was the best of those months, Pang says, with chemical export volume up by 1% year on year. “May has seen a significant recovery,” he adds.

Zhu Jian Min, president of Liaoning Province–based Oxiranchem, told the Chinese People’s Political Consultative Conference (CPPCC) annual plenary meeting last month that his company’s production and sales in April reached last year’s level. In May, he said, its profit should meet or even surpass the same period of last year. Oxiranchem produces ethylene oxide derivatives including cutting liquids for polysilicon, water-reducing agents for cement, and polyethylene glycol.

The CPPCC plenary meeting was held jointly with the annual plenary session of the National People’s Congress, China’s legislature, from May 21–28. At the so-called Two Sessions, Premier Li Keqiang said the Chinese government would take on more debt to fight the economic impact of COVID-19. Since mid-March, China has accelerated investment in infrastructure, including highways and rail lines, 5G telecommunication equipment, and new energy applications.

Pang estimates that Chinese infrastructure investment, headed by 5G deployment, will reach roughly $300 billion this year, stimulating demand for chemical products such as novel ceramics, engineering plastics, and optical fiber.

Prospects are less clear for chemicals used in consumer products. Liao, the shipping executive, says more chemical exports are clearing customs and going abroad with the easing of the pandemic in Europe and other export destinations. However, the transport of chemicals for domestic makers of consumer goods remains low compared with last year, he says.

“As a whole,” Pang adds, “there remain a lot of uncertainties for the chemical industry’s complete recovery.”