Short-term Impact Analysis of 2020 novel coronavirus-infected pneumonia to China MDI Market
2020-02-10    [Source:PUdaily]

The sudden outbreak of novel coronavirus epidemic in China has cast a shadow on 2020 Chinese Spring Festival holiday. Since February 3th many companies have entered the Home Office mode. With the same time, Wanhua took the lead to announce the list price and settlement prices of MDI for this February. Other MDI manufacturers changed their operation plans and kept a close eye on epidemic impact to their businesses. In here (Feb 4th), PUdaily analyzed the short-term impact of the novel coronavirus-infected pneumonia epidemic on China MDI market.

Epidemic Impact to Chinese MDI Manufacturers
2019 Q4 was the low-season for China MDI industry. Some Chinese MDI manufacturers reduced their production loads to keep their inventory levels lower. There were also manufacturers whose facilities underwent maintenance at the end of the year and did not recover to normal operation until early January. Therefore, there is a high possibility that MDI manufacturers did not have much stock before the Spring Festival holiday (also before epidemic outbreak). Due to the delayed return to work by downstream manufacturers and shipping companies, demands from home and abroad may decline and remain sluggish. Some MDI makers have proactively adjusted their production plans and are paying close attention to the development in the epidemic-fighting campaign and changes in the demand side.
As for MDI price, the guidance prices for February recently announced by Wanhua and BASF, remained flat with the prices for January. Currently, market players take bearish on the market. Offers from most traders also have not been heard and they take a wait-and-see attitude. If the spread of epidemic can be controlled within a short-term period, it is estimated that downstream manufacturers will resume normal operation around this April. Considering the seriousness of this epidemic, both domestic and overseas market participants expect that the influence of this epidemic will last until this June, when the MDI demand and price will really rebound.

Epidemic Impact to China MDI Export
In the early morning of January 31, the WHO Emergency Committee held a press conference, announcing that the new coronavirus epidemic in China constituted a "public health emergency of international concern (PHEIC)". Presently, no ban has been imposed on Chinese exports. But over the next 2 to 3 months, when the epidemic in China will be closely monitored, China’s MDI exports may be severely hit as foreign shipping companies will probably avoid transporting Chinese goods. Go Good
Take the Indian market. The period from February to March is typically a peak season for downstream industries in India, when the demand for MDI increases. For example, in 2019, about 30% of India’s annual PMDI imports from China happened in February and March. The volume of its pure MDI imports from China was also higher than that in other months. The current PMDI price in India is already higher than in January. If India’s MDI imports from China are affected by the epidemic, or customers even cancel or delay their orders, the supply of MDI in Indian market will become tight. This will result in increased MDI price. (According to the customs data for February and March in 2018 and 2019, India's PMDI imports from China accounted for 39-48% of its total imports from Asian countries. The share for pure MDI is 42-63%. Thus China is obviously one of India's main sources of MDI imports). Besides, it is heard that South Korean manufacturers received significantly increased enquiries from Southeast Asian countries such as Vietnam, which is presumably due to the epidemic in China.

Epidemic Impact to Chinese Downstream Industries
The epidemic will also have a negative impact to major MDI downstream industries such as automobiles, apparel and construction.
Cloth — Textile Fabrics (Spandex) Spandex is one of main downstream applications of pure MDI and also one of main textile fabrics for clothing. Currently, the epidemic cause the delayed return to work for clothing manufacturers and other upstream and downstream players (such as fabric producers, printing and dyeing mill and light textile manufacturers). Clothing output and sales will drop significantly in this February and March, in turn resulting in decreased demand for spandex. Additionally, the WHO declaring the epidemic to be a " public health emergency of international concern (PHEIC) ,which will bring a negative impact on clothing exports. But the subsectors of sportswear and homewear will continue to grow. There is a growing tendency among people to boost their immunities through exercise. Due to the epidemic many Chinese people have to stay at home during the holiday and to work from home after the holiday. This shift in their living habits means increased demand for homewear and home textiles.
It is worth mentioning that spandex filament yarns can be used in elastic ties of medical garment, paper diapers and ear bands of masks. As the major spandex suppliers in China, Huafon Spandex and Yantai Tayho Advanced Materials have been producing spandex at full steam since the outbreak of the epidemic, trying to ensure the adequate supply of raw materials for the production of masks and other medical supplies. As of February 2, about 60% of the domestic mask capacity had been activated (the capacity has been activated to 73% till Feb 9). With more mask manufacturers returning to work and other materials adequately supplied, in the short term the capacity utilization will continue to rise, thus driving up the demand for spandex. Also, it can be expected that after the epidemic comes to an end, people will more frequently wear masks in their daily lives.

Shoes: On February 2, Belle, a well-known shoe maker in China, published a letter from its president, describing the impact of the epidemic on the company. "So far, about 5,000 stores have been temporarily closed due to the epidemic. Now, the epidemic control is at its critical stage, and we are also having a difficult time. The revenue in February is expected to drop by about 80% and that in March is still unpredictable." The epidemic will have a direct and short-term impact on the retail sales of the domestic footwear industry. Since most of the shoe makers are located in East and South China, epidemic control and return-to-work date in these regions deserve our attentions.

Building and Construction: The epidemic fight precedes migrant workers’ return to work. And the traffic and population movement are regulated more strictly than during the epidemic period of SARS. Thus the recovery of inter-provincial passenger transport will determine the return-to-work date for the construction and building industry. The lack of labor force at the construction sites may cause the growth of infrastructure and real estate investment in the first quarter to fall short of market expectations. Traditionally, Month March and April see recovery in MDI demand from the construction sector. However, with the delay in the return-to-work date, such demand is also likely to come late. Despite that, taking a full-year perspective we believe that the epidemic will have a limited impact on the construction industry. Good performance can still be anticipated thanks to favorable factors such as the counter-cyclical financial and monetary policies that the government will begin to implement in the second quarter, and the revised expectation of the mid and long-term demand when the "14th Five-Year Plan" is announced.

Automobile: In the short term, the impact of the epidemic on the domestic auto market will be felt mainly by auto manufacturers, consumers and those in the logistics sector. For example, the delay in the return to work of automobile manufacturers will affect their production and that of auto parts manufacturers. Car sales will drop sharply in January and February as consumers postpone their purchases. Transportation in most regions is restricted. However, if the spread of epidemic can be controlled within a short period of time, the industry will resume normal operation in April to June. The epidemic will lead to peoples’ reduced reliance on the public transportation system and generate greater demand for low- and medium-end automobiles, especially SUVs made by indigenous manufacturers. Whereas luxury or high-end car market may be hit by the epidemic.

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