COVID-19 mostly behind it, China’s chemical industry struggles to rev up

Following a month-long national lockdown to fight the COVID-19 epidemic, China’s chemical sector is eager to get back on its feet, but the global economic slowdown caused by the coronavirus’ expansion is delivering a second blow.

As of the morning of Monday, March 30, confirmed cases of the coronavirus infection surpassed 720,000 worldwide. Both the US and Italy now have had more cases than China, and with few new cases for weeks, China seems to have largely controlled domestic transmission.

But nationwide factory closures and the nearly complete shutdown of activity in the central province of Hubei, where the epidemic was first identified, have significantly dented China’s chemical industry.

According to data released on March 27 by the National Bureau of Statistics of China, the output of China’s industrial enterprises dropped by 14% in the first two months of 2020, compared to the year-ago period, and profits slumped by 39%. Chemical manufacturing was among the hardest-hit sectors, with output declining by 21% and profits by 66%.

Since mid-February, China has been urging industries to resume operations. However, barriers remain. Pang Guanglian, deputy secretary general of China Petroleum and Chemical Industry Federation (CPCIA), an industry group, points to data showing that 86% of chemical plants have reopened.

“But many resumed plants are not in full operation, with only one or two workshops in some factories put into production,” Pang writes in an email to C&EN.

Kyle Bandlow, a Dow spokesperson, says Dow’s facility in Zhangjiagang, Jiangsu Province, its largest in China, remained in operation throughout the epidemic. All other Dow sites in mainland China went back to work on Feb. 8 and have been running well, he says. Logistics for the firm were back to normal in mainland China before the end of February, he adds.

Big and state-owned players continue to outperform smaller firms, which are more likely to face logistics problems, understaffing, and shortages of masks and other preventive equipment. In Zhongxiang, Hubei Province, the center of China’s phosphorus chemical industry, an official at the municipal bureau of economic information told the Shanghai-based news portal The Paper on March 16 that manufacturers face raw material and transportation obstacles in addition to difficulty implementing environmental protection rules.

Spring demand for phosphorus fertilizers is picking up, “but many out-of-province technicians, whose expertise is necessary for local manufacturers to meet environmental protection requirements, are reluctant to come back to Hubei,” the official told the website.

Pang adds that although roadblocks have been cleared and workers are increasingly returning to factories, many chemical plants are still running below capacity due to a lack of orders. “Many international orders are canceled, worsening the situation,” he says, and prices are low for the orders they do have.

The lockdowns and quarantine measures in Western countries are dramatically reducing consumer demand for a wide range of Chinese-made goods, including phones, toys, and clothes. Layered on the earlier plant closures, this reduced demand is reportedly causing bankruptcies and shutdowns of export-oriented plants in coastal Chinese provinces.

Bandlow says Dow’s operations in China “have not seen significant downward impact” as their products are mainly for the Chinese and Asia Pacific markets. But Liu Quanchang, an analyst with Energy and Chemical Consultancy, which is affiliated with the publication China Chemical Industry News, says the epidemic’s impact on consumer goods exports will soon be felt in chemical markets. “It is a year that chemical enterprises have to experience austerity,” Liu says.

In early March, CPCIA had forecast that China’s petroleum and chemical industry would end the year with a 5% increase in sales and an 8% rise in profit. “Now it seems that these goals will be difficult to reach,” Liu says. “It will be pretty good if we just match last year’s figures.”

The Chinese government has launched massive construction schemes to offset the economic downturn. Among the infrastructure investments, which could total $3.5 trillion overall, are 16 refinery and petrochemical projects in Hebei, Shandong, Fujian, Guangxi, and Guangdong provinces, each costing billions of dollars. These projects would be in addition to big projects already under way by both local companies and the global firms BASF, ExxonMobil, and Sabic, raising concerns about oversupply.

Pang says his federation is actively lobbying the government to extend tax breaks, urge banks to offer beneficial loans, and convince utilities to lower electricity prices.

Still, Liu, the consultant, argues that China’s chemical industry will emerge from the crisis strong. “On the one hand, China’s quick control of the disease can comfort investors, particularly those in high-end chemical fields,” he says. “On the other hand, our advantage to having a complete industrial chain from lower-end mask production to high-end fine chemicals has been fully demonstrated during the epidemic, which will help attract and retain more investments in the chemical industry.”