As of February 15, 2020, the novel coronavirus which originated in the Chinese city of Wuhan has infected nearly 70,000 nationwide, killing over 1,500 [1]. Though the virus appears not as deadly as epidemics like SARS or Ebola, its infection count is already bigger than them combined.
Currently, the country’s chemical sector is feeling the impact of the outbreak.
With the fast spread of the virus, the demand spikes for response supplies, many of which are chemical products, such as disinfectants like hydrogen peroxide and alcohol and polypropylene and polyurethane fiber which are used in producing medical masks and protective suits. Despite the fact that some relevant factories have worked overtime even during the Spring Festival break, the supply of such goods and materials remains extremely challenging.
However, in contrast to the ballooning demand for those mentioned above, the overall short-term demand in the country’s chemical sector appears subdued, which can be practically attributed to a restrained supply chain.
In view of difficulties in controlling the epidemic amid the Spring Festival travel rush (also known as chunyun), the central government decided to extend the new year holiday until February 2, in a struggling effort to avoid massive movements of people. Following this top-level arrangement, some worst-hit provinces, including Shandong, Jiangsu and Zhejiang which derive a large portion of GDP from the chemical sector, announced to further delay resumption of work by another week to February 10.
Even though businesses gain the approval to run again, the authorities have mandated heightened quarantine requirements for both them and their employees. This, along with travel restrictions initiated by some local governments, hinders the recovery of productivity and thus results in product shortages.
Meanwhile, as downstream companies in the supply chain are arguably more labor-intensive than the upstream ones, they may be more affected by the epidemic and the resulting labor dislocation. The sluggish demand from the downstream side has led to excess inventory and therefore slumping prices of some chemical products.
Transport restrictions have also hobbled the resumption of production in chemical businesses and factories. Transport is a critical element within the chemical sector, and its smoothness, or otherwise, has a direct impact on both the procurement and sale activities of chemical businesses. Due to road checks and road closures exercised in many places, businesses which have been up and running again still find it difficult to ship their products out or procure raw materials.
It remains unclear whether the outbreak will have any long-term ramifications for the chemical sector. A report [2]of China Securities reviewed how SARS impacted China’s chemical sector in 2003, concluding that it rebounded quite quickly after the epidemic ended. But it also noted that this time may be different: back in 2003, the chemical sector was growing strongly to such an extent that the epidemic only had a temporary impact on it; however, before the coronavirus outbreak, the chemical sector had gone through falling prosperity for a year and a half.
