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This is a special update on the effect of the coronavirus crisis
on the chlor-alkali market in China. Because the situation is still
evolving, it is impossible to predict the full impact of the
crisis. Nevertheless, this report provides IHS Markit's current
qualitative assessment of the impact to date on the chlor-alkali
supply and demand balance in China and commentary on our assessment
of certain ramifications on the chlor-alkali market outside
China.
Coronavirus impacts on chlor-alkali supply in China
Chinese chlor-alkali plant operating rates have declined due to
the virus crisis. Additionally, at least four plants with combined
annual capacity slightly over 1.5 million tons (chlorine basis) are
confirmed to have shut down, two in Anhui province, one in Hubei
province and one in Shandong province. Average operating rates
across China were near 80% before the Chinese New Year holidays.
Since the virus crisis emerged, average operating rates across the
country have dropped to approximately 65%. However, the impact on
operating rates varies significantly by province, depending on the
severity of the local virus impacts. For example, the impacts on
average operating rates in five key provinces are shown in the table
below. IHS Markit Asian analysts expect continued operating rate
decreases; market discovery suggests that there is potential for
additional end-user plant curtailments or shutdowns as finished
goods inventories rise.
Decreased chlor-alkali operating rates are the result of
virus-related demand erosion and product movement logistics
constraints, as well as rising producer inventories. IHS Markit
expects logistical constraints to put further downward pressure on
operating rates until the crisis abates. Worker shortages, a lack
of drivers, and road blockages are collectively contributing to
challenges associated with moving product. Logistics challenges are
not expected to be resolved immediately when workers are able to
return to their homes from destinations where they spent the
Chinese New Year holidays because they will be subject to a 14-day
quarantine period prior to returning to their workplaces.
IHS Markit discovery indicates that reduced Chinese
chlor-alkali plant operating rates are impacting availability of
caustic soda for the export market. One Chinese producer reported
that they have no caustic to offer to the spot market because they
are operating at only 50% rates and all their production is
therefore directed to the domestic market, albeit a slow domestic
market. Another producer reported high inventories because they are
unable to make regular shipments to Guangdong in Southern China
because Guangdong province buyers' inventories are high. Landlocked
non-integrated chlor-alkali producers in Shandong province are also
plagued by low domestic demand and inability to move their product
due to logistics constraints.
IHS Markit anticipates negative market impacts to continue with
respect to Chinese chlor-alkali production and demand at least
until the end of February with additional producers potentially
being forced to shut down completely.
Coronavirus impacts on
chlor-alkali supply outside China
China does not import a significant amount of liquid caustic
soda. Therefore, decreased caustic soda demand in China has not
directly impacted chlor-alkali operating rates in other Northeast
Asian countries. However, integrated chlor- vinyls producers in
South Korea, Japan and Taiwan report that they are unable to export
vinyls to China due to the impact of the virus on Chinese vinyls
demand. (Global Vinyls Report clients can find detailed information
on the coronavirus crisis impact on the vinyls market in the
February 13, 2020 GVR Special Focus Report.) Japanese integrated
chlor-vinyls producers are reported to have reduced chlor-alkali
operating rates to account for lower chlorine demand for vinyls
production associated with exports to China. Constraints on
non-China Northeast Asian vinyls production has impacted caustic
soda availability for the regular Asian spot market. South Korean
suppliers report that they are sold out of spot caustic soda for
March shipment; Taiwanese producers also have no spot caustic soda
available. Early reports suggest that spot caustic soda may be
constricted from Indonesia, as well.
Coronavirus impacts on chlor-alkali demand in China
All chlor-alkali end-use segments in China have been negatively
impacted by the coronavirus. Decreased demand in chlor-alkali
consumption segments is attributable to a lack of workers, product
delivery logistics challenges, and rising finished product
inventories. Caustic soda and chlorine end-use plants that were
shut down for the Chinese New Year generally remain down.
Average alumina production rates have declined from
approximately 80% prior to the onset of the crisis to about 75%
now.
Viscose fiber production rates have dropped by approximately 10%
due to the crisis, from about 80% on average to 70% on
average.
IHS Markit has been unable to quantitatively assess the impact
of the coronavirus on the pulp and paper market in China, but
discovery indicates that the sector, which was already running at
lower than normal rates due to market pressures prior to the
crisis, is experiencing further slowdown as finished goods
inventories are building, including at converters that consume
imported pulp. Pulp and paper operations in Hubei province, the
epicenter of the outbreak, have halted along with 26 factories. The
Hubei operations will not be allowed to startup before Feb 14,
2020. One bright side for producers, the demand for face masks has
caused tissue paper producers to switch to mask production to meet
demand. Overall, we anticipate further production deterioration in
the pulp and paper sector by the time the crisis passes.
Other chlor-alkali end-use segments reported to be operating at
low rates in China include chemicals production and printing and
dyeing.
Coronavirus impacts on chlor-alkali demand outside China
Prior to the onset of the coronavirus crisis, market pulp
producers outside China forecasted demand improvement. However,
optimism has waned as producers outside China wait to feel the
impact of the virus in the supply chain. Non- Asian pulp producers
do not report downward operating rate adjustments to date. The
two-week strike at pulp mills in Finland catalyzed pulp price
increase announcements, but the impact of reduced demand in China
may counter the strike impact and mute upward pulp price momentum
potential. With pulp mills back to normal operations now in
Finland, the true impact of decreased Chinese demand associated
with the coronavirus crisis may become more transparent.
Pulp market experts believe that supply chain lags will delay
the realization of coronavirus impacts on the global pulp sector
because the feedback from current non-integrated tissue and paper
mill finished goods inventory constraints is expected to take a
month or two to translate into a need for rate curtailments in
Canadian, South American, and European mills.
Many Asian caustic soda consumers that buy Chinese caustic soda
report shipment delays because of the virus-related logistics
constraints in China. Distributors indicated to IHS Markit that
they have 14 day or more waits for product from China. Asian
consumers of Chinese manufactured products also report challenges
getting stock from China. Printed circuit board (PCB) manufacturers
in Taiwan and other non-China Asian countries have been unable to
ship their PCBs to China, especially to factories in Guangdong
province, because the manufacturing facilities in China remain out
of service. Therefore, Asian caustic soda and hydrochloric acid
consumption outside China is negatively impacted by the virus
crisis.
Coronavirus impacts on chlor-alkali trade
Indonesia, Singapore, Malaysia and Philippines have imposed
quarantines on ships arriving from Chinese ports. Ships that have
been in Chinese ports within 14 days prior to arrival in the
Southeast Asian ports are required to quarantine for 14 days at
anchorage before berthing.
A chemical tanker carrying liquid caustic soda from Japan that
arrived in West Kalimantan, Indonesia was quarantined because 7 of
22 crew members have coronavirus symptoms. The buyer may need to
alternatively source caustic soda.
Posted 18 February 2020 by Hazel Kreuz, Vice President, Inorganic Chemicals, IHS Markit