Chinese polymer inventories surge on virus disruptions

Polyethylene and polypropylene (PP) inventories have risen sharply in China, as measures to halt the spread of the coronavirus outbreak hit demand and disrupt transportation.

Inventories at state-controlled producers Sinopec and PetroChina have more than doubled to 1.15mn t yesterday from 520,000t before the lunar new year holidays, which started on 24 January. Stocks were last this high in early 2017.

Warehouses are full and a lack of truck drivers is preventing deliveries from being made. Consumption has also slowed because of the transportation problems. Inventories may continue to rise until at least the lantern festival on 8 February, the traditional end of the lunar new year period.

Some PP producers have reduced operating rates to 80pc. But only a few producers have shut down completely because of the high stocks. The market remains oversupplied, with new capacity adding to pressure. Private-sector producer ZPC started commercial operations at its 900,000 t/yr PP unit in Zhejiang province before the lunar new year break, while fellow private-sector firm Hengli started its 200,000 t/yr STPP unit in Dalian after the holidays.

Propane dehydrogenation operator Juzhengyuan's 600,000 t/yr PP units are running normally. But Xuzhou Haitian shut down its 200,000 t/yr PP unit on 4 February because of pressure from ample supplies, while Pucheng Clean Energy was forced to shut its 400,000 t/yr PP unit from 1 February because of a disruption. PetroChina Qinzhou Petrochemical is planning to shut its 200,000 t/yr PP unit from 9 February until 23 March.

But the capacity cuts are not sufficient to balance the slow demand. Downstream converters have mainly remained shut following the holidays or have lowered operating rates. Most workers have not returned from their home towns following the lunar new year break, as the government tries to control the coronavirus outbreak. Demand has surged for face masks, which use some fiber-grade PP, but this is a small part of the polymers market and not strong enough to give a wider boost.

The virus is continuing to send Asian PP prices lower. Market activity resumed on 3 February after the holidays, but most market participants are working from home, cutting trading volumes. Falls in PP futures have also dragged down physical prices. The cfr market is quiet, with limited fresh offers made because of high port inventories. Domestic PP raffia prices have fallen to 6,850-6,950 yuan/t ex-warehouse in east China, down by Yn400/t from before the holidays.

The Chinese polymers market may fall further amid the oversupply, with no likelihood of any pick-up in downstream demand until the coronavirus outbreak is under control.

Concerns about the coronavirus have also claimed a high-profile industry victim with the cancellation of the Chinaplas 2020 conference, one of the world's largest plastics events. The conference, which was due to be held in Shanghai over 21-24 April, has been postponed until further notice.