Rubber, chemical producers dealing with coronavirus' impact

WASHINGTON—Rubber product and chemical producers in China are facing the same sweeping impacts as other industries in the continuing threat of the coronavirus.

Petrochemical demand alone could fall by between 2.4 million and 4 million metric tons because of the virus, according to Bill Hyde, senior director-olefins and elastomers at Houston-based analytics firm IHS Markit.

The Chinese automotive market also is facing a sharp fall, with obvious impacts for manufacturers of tires, hoses, belts and other rubber auto parts, Hyde said.

As of Feb. 19, total deaths from the coronavirus stood at 2,004, with more than 74,000 reported cases in China alone. The World Health Organization has reported more than 800 additional cases in 25 countries.

There have been quarantines and travel bans worldwide to try to prevent the spread of the virus. Shipments of goods also have been affected. The Wall Street Journal reported Feb. 18 that more than 50 sailings of container ships from China have been canceled since the epidemic began.

To date, travel bans have had the most severe effect on the natural rubber trade, according to an industry source.

"My colleagues usually travel on a regular basis, but now they're not traveling at all," the source said. "The biggest effect was the cancellation of the annual rubber dinner in Singapore. It's a huge event that draws traders from the U.S., Europe and across Southeast Asia. But it's not taking place this year."

The overall Chinese economy will be significantly impact by the virus, according to Hyde.

"Our best estimate right now is that Chinese GDP growth will be reduced by around 0.4 percent this year to about 5.4 percent," he said. "A more aggressive scenario could result in GDP growth below 5 percent in 2020."

The coronavirus' impact on transportation in China has caused negative growth in global crude oil demand in the first quarter of 2020, according to Hyde.

According to IHS Markit estimates, China's daily consumption of crude oil has fallen by some 1.4 million barrels compared with this time last year, he said.

"China was expected to account for roughly half of crude oil demand growth this year, which explains how large the global impact is," Hyde said. "OPEC is still struggling to decide how to respond to the current market conditions."

Petrochemical markets also could suffer because China is planning significant production capacity additions, according to Hyde.

Lack of labor and other resources could delay those additions. Also, less naphtha from China would mean a severe impact on petrochemical feedstock balances, he said.

Much of Chinese auto production capacity is in the region hardest hit by the coronavirus.

"In our base case, first-quarter automotive production in China falls by more than 8 percent," he said. "More aggressive yet realistic assumptions result in automotive production falling more than 15 percent."

These decreases, sharp as they are, don't tell the whole story, because the global automotive supply chain is heavily dependent on China, Hyde said.

"For example, we know that light vehicle production in South Korea has been reduced due to less availability of assemblies from China," he said.

Rubber product and chemical companies were guarded in their comments on the situation in China.

"Our daily operations have not been directly affected as of right now," said a spokesman for HB Chemical regarding the company's Chinese production. "We usually try to stay ahead of the kind of situations to secure as steady of a supply as possible. We have some containers ordered from China that have not left yet and are hoping they get released soon."

Freudenberg has 70 sites in China, comprising 23 factories and approximately 7,000 employees, said a spokeswoman for Freudenberg North America L.P.

"Our regional corporate center in Shanghai and occupational safety and health department are providing advice on hygiene and conduct to colleagues on site, along with face masks," the spokeswoman said.

A ban on travel to and from China also is in effect for Freudenberg employees, she said.

Cooper Standard is monitoring the situation in China closely, a spokeswoman said. The company has taken several actions including temporarily closing Chinese facilities over the nation's Spring Festival, restricting travel to and from China, and encouraging employees to work remotely whenever possible.

"The health and safety of our employees is Cooper Standard's top priority," she said.

On Feb. 18, Trelleborg A.B. reported that most of its eight production facilities and 1,600 employees in China had resumed work after closing temporarily because of the virus.

Trelleborg's situation is "somewhat of a moving target" because of the decisions of local authorities, a Trelleborg spokeswoman said. The company continues to face supply-chain problems because of restrictions on transport companies, she said.