Latest Developments
The outbreak of the SARS-like coronavirus could have a significant economic impact on the Asia-Pacific region depending on how long the affected areas are under lockdown and restrictions are imposed on movement. As of 5th February 2020, China has reported more than 24,000 confirmed cases of the coronavirus, with the death toll at 492.

Following the Chinese central government's announcement of an extension of the Lunar New Year holiday period to 2 February to keep the public at home, several major cities and provinces, including Shanghai and Guangdong, have announced a further postponement of a return to work to the week beginning 10 February. Latest reports confirmed that Beijing, Chongqing, and Zhejiang provinces will also delay the return to work to 10 February.

Impact on Acrylates Demand
Lunar New Year, a one week off holiday, is traditionally an idle period with slow demand. As the coronavirus outbreak happened around the same time, it has not immediately impacted the market. However, with the delay of people getting back to work, downstream demand will be postponed by a week. In the automotive sector, based on a five-day work pattern, the postponement of a return to work to the week beginning 10 February would see 280,000 units of light-vehicle production lost across the facilities and provinces that have made the announcement to date. Restrictions on goods and people transportation will also have an impact on the construction sector although it is currently in its low season.

Impact on Acrylates Supply
Inventory is gradually building up at large producers but still at controlled level through the holiday week, similar as previous Lunar New Year season. But with the expectation of slow moving in the market, operating rate will be further reduced to keep the inventory level. Producers however are suffering from restricted inbound and outbound logistics. One major producer in Jiangsu province is heard to be suffering from severe outbreak related production issues.

The coronavirus epidemic may trigger force majeure clauses by Chinese counterparties in provinces that have experienced reduced business because of US-China trade disputes. Thirty provincial-level regions have enacted the level one designation to date, giving the State Council powers to implement response measures and information dissemination.

Companies are likely to face stronger oversight over actions that could adversely affect employment and the price of essential items. If the virus spreads further, local governments may ask offices and production facilities to again postpone reopening.

Chinese companies may consider declaring force majeure to terminate or breach the terms of agreements with their commercial partners to minimize economic loss. This risk is particularly high for companies with agreements containing unclear force majeure provisions that Chinese partners could exploit. Counterparties based in localities with slow economic growth, or that have experienced strong adverse impacts from trade diversion during the past year due to US-China trade disputes, will be particularly prone to local political pressure to limit losses.

Impact on Logistics
Travel restrictions to, from, and within more Chinese cities is likely in the coming days. Cities with large numbers of suspected cases and those along the Yangtze River and with high-speed rail connections are at greatest risk. Within China, travel across provinces is being strongly discouraged by local governments. Although acrylates producers have promised that there will be no issues with domestic logistics, transportation between regions will be restricted and experience delays. Health and epidemic prevention checks slow down transportation of people and goods. More-over, restrictions at transport hubs, such as Wuhan's railway station, complicate itineraries. Finally, a shortage of labor due to many transport workers being cantoned to their homes complicates matters further. Logistical complications are also likely to add costs in addition to extended lead times.

Export logistics are not seen as problematic right now with shipping lines reporting unaffected schedules. The ports operations have not been affected and are under strict protection measure from the epidemic.

Impact on India
India is the largest importer of Chinese Butyl Acrylate in the world. No restriction in the movement of Chinese goods to India has reported to date. The lack of Chinese domestic demand is making volumes of acrylate esters available to the export market. The increase in Indian import duty on Butyl acrylate (from 5 to 7.5%, effective February 1st 2020) is unlikely to prevent China to India movements in the short term.

Wider Implications
The estimated economic impact of SARS was an approximately 1% reduction of China's 2003 GDP. Using this as a benchmark for the potential maximum economic impact of current epidemic, China's real GDP growth in 2020 could be reduced by 1.1 percentage points from IHS Markit's current baseline forecast of 5.8%. As with the current epidemic, SARS was a coronavirus and its outbreak coincided with the Lunar New Year holiday. The epidemic lasted roughly six months (January to June 2003, although the first case was suspected in November 2002).

China's economy is more vulnerable today than it was during the SARs outbreak, with productivity and overall economic growth falling and the effects of the US-China trade conflict. Travel bans, heightened public health measures, and the current extension of the Lunar New Year holidays to 2 February - there was no extension during the SARS outbreak - will significantly impact household consumption, but will affect production less as factories are seasonally idle during this period.

Mainland China's impact on the world economy is also much larger now than during the SARS outbreak, meaning the slowdown in Chinese growth may be a significant drag on global growth. Mainland China's economy was the sixth largest in the world in 2002, accounting for 4.2% of world GDP; it is now the second largest economy in the world, accounting for 16.3%. Similarly, mainland China is now the second largest importer in the world, accounting for 10.4% of the world's goods imports, compared with 4.0% of the world's imports in 2002.

source from IHS Markit