The impact of the coronavirus on the Chinese polyester industry

The Chinese economy and the country's polyester and textile industries could be under pressure as a result of the new coronavirus outbreak. Drawing a parallel with the SARS crisis in 2003, polyester demand may weaken as business activities stall.

Commenting, Salmon Lee, Wood Mackenzie Principal Consultant, said:

"The polyester chain could falter amid the economic disruption in China.

"Concerns among market players in the polyester chain are widespread. Central China, where Hubei is at the core, is in a virtual standstill. All transport links have been cut amid the lockdown. Passing through the Yangtze river - stretching from one end of China to the other - has become impossible. Land transport is limited. If the virus spreads further, more cities and/or provinces in China could see a similar lockdown. That would be a logistical catastrophe and disruption to the polyester and textile industries would be disastrous.

"Hubei, and much of central China, is an important manufacturing base for the textile industry - with many textile, print and dyeing businesses clustered there. A prolonged transport paralysis will mean no fibres or fabrics produced in the major production bases in coastal provinces of China will be sent inland - whether by road, rail or along the Yangtze. Similarly, the delivery of apparels and other finished textile products to other parts of China, as well as exports, could also stall.

"Many workers of polyester producers, spinners, weavers and garment manufacturers had returned to their hometowns earlier in January - ahead of the Lunar New Year holidays. These workers may not be able to return to work amid the badly disrupted transport network. What’s more, the originally week-long holiday was extended to 2nd February nationwide. Shanghai and at least 23 other municipalities and/or provinces have mandated no resumption of work before 9th February.

"A repeat of the dip in polyester production in 2003, amid the SARS outbreak, could be seen this year.

"Polyester and downstream production will likely fall this month. This could extend further if the epidemic is not brought under control soon. The SARS crisis in 2003 brought down Chinese polyester production for three months. Very importantly, prices tumbled for polyester products and raw materials, PTA and MEG. This rattled the petrochemical markets, including the paraxylene industry, and the plunge was seen almost across the board for the industry.

"Similar concerns have taken hold of the industry recently. Demand growth could be derailed amid economic inactivity and supply chain disruption.

"A spike in demand for medical supplies is not going to help the polyester chain. The demand for surgical masks and protective suits has surged. The main raw material of this equipment is polypropylene fibre. A small amount of polyester fibres, both virgin and recycled, are also used for this protective gear.

"Nevertheless, if daily demand for protective gear rockets to the hundreds of millions, it is still not going to change the gloomy picture ahead. The amount of polyester fibres in one mask has been estimated to be no more than 1-2 grams, situated mainly in the elastic band. This is miniscule when talking about a demand spike and will not help to mitigate the economic impact on the polyester chain.

"Indeed the polyester industry, and in extension the downstream textile and apparel sectors, could remain in a lull for some time. Given the SARS crisis took approximately four months to peak and another 2-3 months to taper off, this epidemic could also follow a similar pattern.

"There is a silver lining among the dark clouds. In 2003, the SARS crisis did not last beyond the summer of that year. The rebound in demand during H2 2003 was robust. China’s GDP growth that year registered a year-on-year growth increase overall, despite the difficulties in the first two quarters.

"This time, the post-coronavirus markets in the polyester chain may also see a quick and strong recovery by the middle of the year."