Polyether Market: Winter has arrived—how much longer until spring?
Release time:
22 Feb,2020
At the start of 2020, the Phase One economic and trade agreement between China and the U.S. was signed, boosting market confidence across the board. However, the outbreak of the novel coronavirus caught everyone off guard.
The short-term direct impact of the epidemic is evident and specifically manifests in four aspects:
First, governments in many regions across the country have issued relevant regulations extending the Spring Festival holiday. Enterprises and factories are not allowed to resume work before February 9 (in some regions severely affected by the epidemic, the resumption date has been postponed until February 14). As a result, corporate production is being constrained.
Second, transportation routes across many regions nationwide are subject to traffic restrictions, disrupting the flow of goods.
Third, currently, mass consumption is at a stage where it primarily meets basic living needs, and many shopping malls and stores are closed or temporarily shut down, making it impossible to boost consumer spending.
Fourth, regarding imports and exports, the WHO has designated this outbreak as a PHEIC, and several countries have imposed entry restrictions on flights and ships arriving from China.
For the polyurethane industry, domestic demand remains sluggish, with end-consumer spending struggling to pick up. Downstream sponge manufacturers have delayed resuming work, disrupting normal production and leading to rising inventories, thereby weakening demand for upstream raw materials. Meanwhile, transportation restrictions in many regions have severely hampered logistics, making it difficult—even impossible—to deliver supplies smoothly despite some limited demand. As a result, raw material suppliers are facing mounting inventory pressures, reducing their operating rates and even halting production altogether. Export trade is also being affected in the short term.
Overall, the longer the pandemic drags on, the greater the negative impact will be—but there’s no need to be overly pessimistic.
Looking back at the SARS outbreak in 2003, China’s economy was hit hardest in the second quarter of 2003. In 2003, GDP growth rates for the four quarters were 11.1%, 9.1%, 10%, and 10%, respectively. However, SARS did not alter the upward trend of China’s economy at that time; from 2001 to 2005, China’s real GDP grew by 8.3%, 9.1%, 10%, 10.1%, and 11.4%, respectively.
In response to this epidemic, the Chinese government is also actively taking countermeasures. For instance, on the very first day of trading, the central bank injected 1.2 trillion yuan in liquidity through reverse repurchase operations. Meanwhile, five government departments have instructed financial institutions not to arbitrarily withdraw loans, cut off lending, or tighten credit conditions for industries severely affected by the epidemic, as well as for enterprises with promising growth prospects that are temporarily facing difficulties due to the epidemic—especially small and micro enterprises. For enterprises severely impacted by the epidemic and experiencing difficulties in repaying loans at maturity, lenders may grant loan extensions or renewals. Additionally, through measures such as appropriately lowering loan interest rates, increasing credit loans, and boosting medium- and long-term loans, the government aims to help these enterprises overcome the adverse effects of the epidemic.
The author believes that if the epidemic can be effectively contained in the short term, the economic situation may stabilize in the second quarter and then gradually recover.
From the perspective of the micro-level polyether market, according to market reports, polyether prices have begun to rise in some regions, such as Southeast Asia, due to restrictions on domestic exports. Moreover, certain polyether products manufactured in China enjoy a high market share overseas. Some market participants suggest that the restrictions on China’s exports could further tighten the supply of these products. Meanwhile, if the domestic economy recovers in the second quarter, rising overseas polyether prices and the widening demand gap will both spur the recovery of China’s domestic polyether industry.
Currently, China’s economic situation is indeed in the depths of winter, but now that winter has arrived, spring will surely not be far behind.
To borrow a phrase from IMF Managing Director Georgieva in yesterday’s video: “We are fully confident in the resilience of China’s economy.”
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