Currently, the entire country is united in its resolve and working wholeheartedly to combat the spread of the novel coronavirus epidemic. All member units of the Shanghai Polyurethane Association are firmly committed to implementing the Party Central Committee and the State Council’s decisions and arrangements for epidemic prevention and control, fully embracing the guiding principles of “firm confidence, solidarity and cooperation, scientific prevention and treatment, and targeted measures.” In light of their specific business conditions, these enterprises are making every effort to ensure safe production and safeguard the health of their employees and the general public—balancing epidemic control with safety and production assurance, and doing their utmost to mitigate the adverse impacts of the epidemic on their businesses. To understand the impact of the epidemic on the production and operations of member companies, the Association’s Secretariat has conducted a preliminary survey of key member enterprises via WeChat, telephone, and questionnaires. The relevant findings are summarized below:

I. Current Basic Situation of Enterprise Operations

1. Due to the requirements of continuous production processes, large upstream raw-material enterprises did not halt production during the Spring Festival. However, they are now generally grappling with significantly increased inventory pressures caused by a sharp decline in downstream demand. As a result, these enterprises have been forced to reduce their production capacity, and some have even shut down certain production lines to alleviate inventory burdens. Since key raw materials are supplied by companies within the same industrial park, the impact on these enterprises has been relatively limited.

2. After some large-scale raw-material enterprises, which had suspended production for the Spring Festival, resumed work on February 10, their equipment utilization rates remained relatively low—ranging from 20% to 40%—due to many employees being based outside the local area and the impact of quarantine and observation measures imposed on incoming personnel.

3. Downstream enterprises—primarily small, medium, and micro-sized businesses involved in polyurethane products, including system materials—have largely come to a standstill, with only a very few companies engaged in the production of epidemic-fighting supplies operating at full capacity. Most of these enterprises are currently shut down, and it’s impossible to provide a definite timetable for when they’ll resume operations. Even those enterprises that have already resumed work remain in a semi-shutdown state due to a lack of orders.

4. Enterprises have actively responded to the government’s call: all enterprises or positions suitable for telecommuting have been fully arranged for remote work, and those requiring on-site presence are implementing a rotating schedule. Each enterprise has earnestly fulfilled its responsibility for epidemic prevention and control within its own organization.

II. Main Affected Factors

1. Currently, logistics and transportation face significant challenges. Cross-provincial transportation is subject to strict entry requirements in each province, which is impacting product order deliveries and raw material supplies.

2. Downstream orders are insufficient. The failure of downstream customers to resume production has brought order volumes to a near standstill, and delivery schedules for existing orders will also be delayed. Affected by the pandemic, companies in key polyurethane application sectors—such as automotive and construction—have largely postponed their resumption of work, resulting in a significant drop in orders for member companies. Even those companies that have already resumed operations find themselves with little or no work to do.

3. Delayed resumption of work has led to labor shortages. A large number of employees are unable to return to the factory on time, and even those who do return are required—according to local regulations—to self-isolate and undergo 14 days of observation before they can resume work. As a result, some companies that have resumed operations are facing extremely tight labor arrangements.

4. Corporate inventories have increased, putting greater financial pressure on businesses. Due to sluggish sales of finished products, corporate inventories have risen, slowing down the turnover rate of finished goods and the pace of capital turnover, thereby intensifying the pressure of cash shortages. As a result, companies have been forced to respond by reducing production capacity.

5. The primary reason some enterprises have not resumed work in a timely manner is that their resumption applications have been rejected due to failure to meet the required conditions. Additionally, affected by the nationwide delay in resuming work by enterprises, reduced orders have also prompted some companies to voluntarily postpone their resumption of operations.

III. Our Recommendations

1. The issue of inefficient enterprise logistics should be addressed as soon as possible. We must strive to ensure that enterprises can carry out their normal production and business activities in an orderly manner and maintain stable operations.

2. The approval procedures for resuming business operations should be expedited. Enterprises should actively seek support from local governments at all levels and, while ensuring that epidemic prevention and control measures are effectively implemented, resume production or return to normal operations as soon as possible.

3. The government should provide assistance in supplying enterprises with anti-epidemic materials, thereby preventing public panic caused by inadequate prevention and control measures.

4. Shanghai’s 28 Support Policies

Enterprises generally reported that the municipal government promptly introduced supportive policies when businesses were facing difficulties, helping them regain confidence. The impact of the pandemic on small and medium-sized enterprises will persist for some time. We hope the government will further intensify its support measures, such as temporarily exempting or reducing corporate value-added tax, income tax, and related surcharges; temporarily waiving or reducing social insurance contributions; providing subsidies to help stabilize employment; facilitating enterprise loans; and lowering public utility charges like electricity and natural gas tariffs.

Shanghai Polyurethane Industry Association

February 18, 2020