Covid concerns loom large in China, hitting demand and supply-chain

With less than a month to go until the start of the Chinese New Year and the opening of the 2022 Winter Olympics in Beijing, China has been facing a new wave of Covid-19, including the latest and more infectious variant Omicron.

These latest measures have not only weighed on demand inside the country but also resulted in renewed concerns regarding the global supply chain as the ports located in nearby lockdown areas have been facing congestions, backlogs, and halted operations accordingly.

China on Covid battlefield again, slowing port activities disrupt supply-chain

The northern city of Xi’an and the city of Yuzhou in the central province of Henan have been under lockdown since December 23, 2021, and January 3, respectively due to rising Covid-19 cases. Even though the number of cases is minimal, the Chinese government has issued these lockdowns as part of their strict zero-Covid policy.

On January 9, a northern Chinese port city, Tianjin, also began a citywide testing campaign of its 14 million residents. Tianjin’s proximity to Beijing has heightened the urgency, as the capital will host the Winter Olympics on February 4.

After port operations at the world’s third busiest port located in the city of Ningbo were disrupted, the Beilun district has been burdened since early January. Thus, shipping and supply chain executives are now closely observing for any potential impact on Tianjin.

Freight rates already tend to be higher ahead of the Chinese New Year due to a slowdown of activities. The renewed Covid measures are now creating an additional slowdown, exacerbating the congestion in shipping traffic and driving costs higher.

Polymer demand comes under further pressure

Demand for polymers including PP, PE, and PVC has been limited in China due to the off-season as well as buyers’ cautious stance. The market activity has already been expected to slow down ahead of the approaching Chinese New Year and Winter Olympics in Beijing, meanwhile.

Adding to the scene was the resurgence of Covid-19, even pushing buyers to start their holidays earlier than expected.

A PVC compounder in Jiangsu commented, “Buyers have reported that they are facing difficulties in moving cargoes in Zhejiang, Ningbo, and Tianjin due to the lockdowns. Manufacturers in these areas might be entering the holiday mood soon as the outbreak might take several weeks to be taken under control.”

A PP trader also said, “Many plants in Ningbo are affected by the pandemic. There are also transportation restrictions. Demand is likely to be slow due to growing concerns about rising Covid-19 cases and the Chinese New Year holiday. We think that Chinese players, especially from downstream markets, will begin the holiday as of next week.”