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Chinese Olympic Ban on Chemical Production Creating Supply Problems Worldwide

The Chinese government has banned the production and shipment of numerous chemicals in the area surrounding Beijing during the run-up to the Olympics in an effort to improve air quality, and this situation is beginning to have a significant impact on the global chemical market. Last summer, the government announced that “heavy-polluting industries” would need to scale back production during the Olympics, either by adjusting working hours or shutting down altogether.

According to China Daily, at that time, the government noted that more than 190 chemicals plants had been shut as a result of anti-pollution measures associated with the Olympics. Beijing’s Municipal Public Security Bureau has imposed a blanket ruling on the production and sale of more than 257 chemicals near the city from May 1 to October 17. The new rules cover plants within a 500 km radius of Beijing, with stricter rules for plants near Beijing, especially within Shandong province. According to the AP, the Eastern Chemical Plant of Beijing Eastern Petrochemical Co. will halt production, and coal-burning boilers that fail to meet emission standards also will be closed. The ban also affects the production of cement and concrete, and quarry operations. Five provinces and municipalities surrounding Beijing will also be closing factories: the city of Tianjin; Hebei, Shanxi, and Shandong provinces; and the Inner Mongolia region.

On June 9, 2008, the official website of the Chinese Olympic Committee announced a 14 week ban on fireworks and “highly toxic chemicals,” and the use of liquid chlorine as a disinfection agent. The ban runs from July 1 to October 8.

During the 14-week ban, the safety watchdog will stop approving new projects involving the production or distribution of highly toxic chemicals. Businesses and individuals who buy existing toxic chemicals during this period will need to register their names, ID reference, names and quantity of the chemicals, as well as purposes of the purchase. Meanwhile, hazardous chemical workshops, warehouses, distributors and mines have to report to the local safety watchdog on a weekly basis in July and daily in August.

According to ICIS News, as of early May, the ban was already affecting some major feedstocks, including propylene, ethylene, diethylene glycol, styrene monomer, and caustic soda. Many plants have been preparing for the new rules by retrofitting their plants to comply with the rules, but many also have been forced to temporarily shut down.

I already have heard from suppliers that this situation is creating spot shortages in certain rubber chemicals, particularly primary accelerators (TBBS and MBTS), and have heard concerns from carbon black suppliers as well. As the summer progresses, this situation, along with oil prices, will certainly cause some disruptions in the chemical industry supply chain, creating ripples throughout the entire economy. The tire industry supply chain is certain to feel these effects, resulting in spot shortages of key raw materials and higher prices.

More on this as the situation evolves. I am curious to hear from companies directly or indirectly affected by the ban. Write to me at info AT notchconsulting.com.

More stories related to this situation: Banned by Beijing, an ongoing feature in the Wall Street Journal on the various bans associated with the Olympics. Blog post on the effect of the ban on the Indian chemical industry.

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