China: Market Scenario Impact of Covid-19 on China’s Chemical Industry
China’s GDP shrunk 6.8 % in the last quarter as compared with a year earlier. The country’s chemical manufacturing output declined by 21 % and profits by 66 % in the first two months of 2020 due to the coronavirus scenario. However, now with the virus defeated, the East Asian nation hopes to improve these figures.
The world economy will experience the worst recession since the Great Depression (1929 –1933), states the International Monetary Fund (IMF). The outbreak of the global pandemic of Covid-19 in January followed by extended lockdowns in most countries has disrupted the global economy. The signs of this downfall have already begun with China’s GDP shrinking 6.8 % in the last quarter as compared with a year earlier. China is one of the world’s leading economic powers but its business has suffered considerably in the past few months due to the virus.
China’s Chemical Manufacturing Output Plunges
As of today, the country has opened up to the world as the number of Covid-19 cases has dwindled but the damage has already been done. The chemical industry in China is one of the most dominant sectors around the globe. According to a Cefic report titled ‘2020 Facts and Figures of the European Chemical Industry’, China is the largest chemicals producer in the world, contributing 35.8 % to global chemical sales in 2018. However, in the first two months of 2020, chemical manufacturing output declined by 21 % and profits by 66 % due to the coronavirus scenario, reveals data by the National Bureau of Statistics of China.
Big Chemical Players in the Market
The lockdown in China was lifted in early April however, since mid-February, the government encouraged industries to resume operations. By the end of February, most chemical plants had resumed operations but the lack of domestic and international orders forced these facilities to operate below capacity. International heavyweight companies such as BASF, Dow, Eastman Chemical Company and many others have a significant presence in the East Asian country.
For Dow, the situation is not that grim as its largest facility in China which is located in Zhangjiagang, Jiangsu Province continued operations during the pandemic and its other sites in China also resumed operations by mid-February. The company’s operations did not suffer much during this period as it mainly catered to the Chinese and Asia Pacific markets.
Similarly, some of BASF’s plants that supplied critical raw materials to products in fighting Covid-19 remained operational with approval from local authorities, informs the company in a mail to PROCESS Worldwide. Most of the other sites resumed operations by February 10 and currently, all the sites of the company are operating at a safe and stable pace.
However, Eastman Chemical Company had to halt its plant operations in Wuhan, the epicenter of the virus. As of early March, the facility was still shut and the company has not sent out any update since then. The facility produces Benzoflex-brand benzoate ester plasticizers, benzoic acid and sodium benzoate for adhesives, sealants, flooring, coatings and inks.
Supply Chain Fiasco
Logistics within China was also a matter of concern during the pandemic as it significantly affected the sales of chemical production companies. For instance, in February, Shanghai BASF Polyurethane Co, a joint venture of BASF and China's Sinopec Assets Management Corp and Shanghai Huayi Group Co, arranged 3,150 tonnes of toluene diisocyanate (TDI), a raw material used in automobile and construction, to supply to its Chinese clients. However, the clients pushed back the orders in the midst of Covid-19 as the pandemic lead to disrupted logistics and prevented factories from resuming operations. Hence, the company was forced to export the large order to Europe.
What it means for World Chemical Producers…
China has always been the hub for the world’s chemical industry. Hence, when the country was the first to be impacted by the novel Coronavirus it had far reaching consequences as global supply chains were disrupted thus jeopardising some of the leading chemicals producers’ ability to deliver finished products to their customers. This scenario along with the US-China trade war crisis of the past has led many to contemplate about their dependence on China and hence, the need to identify alternative sourcing markets. However, one can’t overlook the strong China market and therefore, a more diversified supply chain maybe the solution for businesses to mitigate risks and operate smoothly in the future.
China still Going Strong
Despite the back to back hurdles, some of the biggest players in the chemical industry are continuing their investments in the country with some mammoth projects. In November 2019, BASF launched its ‘Smart Verbund’ project in Zhanjiang, China. The 10 billion dollar complex is expected to be the third largest BASF site worldwide after Germany and Belgium. Scheduled to be complete in 2030, the first plants of the project are likely to be operational by 2022 and produce engineering plastics and thermoplastic polyurethane (TPU) serving a range of key industries.
Another mega project is Exxon Mobil which recently announced the construction of its 10 billion dollar petrochemical complex in Huizhou, Guangdong province. On completion, the complex is anticipated to produce 1.6 million tonnes of ethylene per year. The project is claimed to be one of the few major petrochemical projects in China to be wholly owned by a foreign investor.
Towards the end of last year, Sinopec Sabic Tianjin Petrochemical, a 50-50 joint venture of China Petroleum & Chemical Corporation and Saudi Arabia Basic Industries Corporation (Sabic), announced expanding ethylene production at its 1 million-tonne per year plant in the Tianjin Province, China. Scheduled for start-up in April 2021, the site is expected to offer an ethylene production of up to 1.3 million tonne per year on expansion.
China has dominated the global chemical industry for the past two decades and this trend is expected to continue in the near future. In spite of the many challenges which this country has faced, China still remains a driving force in the world market.