Update on chemical factory closures in China
Supply Situation Chinese Chemicals

Supply Situation Chinese Chemicals

The supply situation for Chinese chemicals is more volatile than we’ve seen in 10 years. A new raft of stringent anti-pollution measures is forcing thousands of China’s chemical factories into permanent or temporary shutdowns. At Partners in Chemicals we’re seeing a new reality for the chemical business in China: shortages of raw materials, longer lead times and rising prices.

The main purpose of China’s “Cease-Work Orders” is to optimize the atmospheric environment and control increasingly severe haze weather especially in the winter season. The specific measures include stopping and limiting production for industrial enterprises that may cause atmospheric pollution.

Illegal dumping of chemical waste hits clean factories too

China is focusing not just on reducing its infamous haze but also on cleaning up the disposal of chemical waste. Traditionally many parties have resorted to illegal dumping rather than pay high disposal prices (USD 2,000 per metric tonne). The authorities are now introducing severe measures to tackle the problem. But the infrastructure just isn’t in place to deal effectively with all the waste. So it’s a vicious circle. If a plant can’t access proper facilities for chemical waste disposal, it’s deemed to breach regulations and will be closed down

There’s a random element too. If one producer on an industrial park breaches regulations, the Chinese authorities can temporarily close all the facilities on the complex: even companies like ours which have invested in modern state-of-the art facilities. And even if you make 100% of the changes required, you could be still closed down if someone dumps waste near your plant.

Of course we applaud the Chinese authorities for taking action on the environment. But as far as we can see, the severity and speed of the new measures are taking everyone by surprise.

Prepare for chemical price rises and longer lead times from China

In a volatile situation, one thing you know for sure is that prices of chemical supplies will rise along with lead times. Our advice is to order as early as you can. Our factories in Jiangsu and Hebei province have implemented most of the new regulations and are producing at full capacity. This is also the case for our contract partners in China.  We’re working round the clock with our partners to manage the situation and obtain up-to-date and reliable information. To assess the options for our production partners and our clients.

What we know:

  • The Cease Work Order will run for 6 months from October 1 2018 to March 31 2019 in the Beijing – Tianjin and Hebei province.
  • The geographical scope has also been extended to the Yangtze river delta region. Many chemical manufacturers currently located along the Yangtze river will be shut down, relocated or renovated by 2020.
  • In the Shandong province alone the authorities have already permanently closed 620 chemical facilities this year and stopped production at 2,614 others pending rectification measures.
  • The number of cities involved is increasing from 28 to 80.
  • The shutdown affects several industries in China including: chemicals, petrochemicals, thermal power, steel, non-ferrous (non-alumina), cement.

What we expect short-term

  • Lead times for Optical Brighteners, UV Absorbers and Light Stabilizers of between 10 to 12 weeks (if the product is available)
  • Price rises
  • Shift from long-term pricing to spot pricing for chemicals
  • Increased pressure on the Chinese chemical manufacturers that are open
  • More stringent environmental measures in China through to 2020

What you can do

  • Contact us to make a clear forecast together and discuss the current local stock levels available
  • Lay in a stock of products
  • Keep in touch for the latest information

 


Please keep me informed about the situation in China