Breathing space

On April 4 Andrew Cuomo gave a few words of thanks to the Chinese government’s consul general in New York as well as the two co-founders of Alibaba, Joe Tsai and Jack Ma. “This is a big deal, and it’s going to make a significant difference for us,” New York’s governor acknowledged, referring to China’s donation of 1,000 medical ventilators. The aid came two days after the Empire State had reported just six days of supply left in its stockpile of breathing machines, as it braced for an apex in Covid-19 outbreak that was expected to push demand for such medical devices to at least 37,000.

Ventilators – which pump oxygen into the lungs and remove carbon dioxide from the body – have become increasingly scarce as the number of active Covid-19 cases has surged past one million. For at least 5% of those infected by the disease – typically the patients that end up in critical care – the machines are crucial in stopping blood oxygen levels from dropping to a point that causes organ damage. Each patient needs an average of 10 days on ventilator support to battle the coronavirus, according to the University of Washington.

Hence the surge in demand for the life-saving equipment around the world. “The ambassadors to China of Italy, Spain, and Israel had called me directly [for ventilators]. I’ve already given them hundreds, but they wanted more,” Li Xiting, chairman of Mindray, China’s largest medical equipment maker, told National Business Daily, noting that each order was asking for thousands of units.

“There’s literally no country in the world that doesn’t want to buy a ventilator from China right now,” Li Kai, director of Beijing Aeonmed, told Bloomberg. “We have tens of thousands of orders waiting. The issue is how fast we can make them.”

Factories at Mindray and Aeonmed now have orders to keep them at full capacity till the third quarter, while mid-tier players such as Micomme and Jiangsu Yuyue are also running at full tilt, reports Phoenix News.

To handle the additional demand, some factories are more than doubling their capacity through new production lines and introducing extra shifts to work around the clock at existing ones.

Chinese firms had delivered more than 27,000 ventilators as of March 29, versus 8,400 for the entirety of 2018, data from the Ministry of Industry and Information Technology suggested. Of the country’s 21 biggest ventilator manufacturers, eight have obtained CE certification in Europe, accounting for a fifth of production capacity worldwide. Another 14,000 nasal mask ventilators, which are termed as ‘non-invasive’, could also be shipped overseas in April, Bloomberg Intelligence reckons.

For a lot of the manufacturers, the clamour from overseas customers not only means more sales, but also new recognition in the market. Previously Chinese producers – even the best ones – were never dominant in China’s own high-end segment. Mindray and Comen were the only local vendors in the top 10 for sales to the Chinese market last year, and they made up just 16% of sales between them, according to Jiemian, a news portal.

Now the Chinese firms are in much greater demand – and often in countries where they had little commercial presence previously. But to profit they are also having to wrestle with key component shortages, because measures to contain Covid-19 have disrupted their supply chain. “Some of our components need to be imported from Europe. But due to the impact of the epidemic, flight schedules are uncertain, and so are delivery dates,” Zhang Xue, who works for a Nanjing-based ventilator firm, told Caijing, a local business magazine. “Besides, the supply of key parts is very tight. All ventilator manufacturers are vying for them. As a result, each party can only procure a limited amount.”

Investors are still taking positions in the main producers’ shares, however. Jiangsu Yuyue’s Shenzhen-listed stock has climbed 86% year-to-date, while shares in Mindray have risen 48%. Beijing Aerospace Changfeng’s Shanghai-traded stock more than doubled in value on news of its ventilator output too.

The rally in share prices is mirrored by the price rises in their products. Units normally priced at $20,000 are being sold for $36,800, for instance, because middlemen are trying to profit from the skyrocketing demand.

“All price quotations are only valid for the day. If you don’t get back in an hour, you will lose the goods. And if you check again the following day, the price will have gone up,” an insider told Caijing.

The scramble for Chinese medical supplies is also being seen in the market for surgical masks. “It’s just a madhouse,” Michael Crotty, a Shanghai-based textile broker, told The Guardian last week. Handling a flood of new enquiries from the US, he noted that some manufacturers were demanding to be paid in full before letting the goods leave their factories. “It’s a really unusual circumstance to have these factories absolutely in the driver’s seat,” Crotty noted.

There was another surge in orders when the World Health Organisation made a U-turn on the effectiveness of face masks in countering the spread of infection, prompting Western governments to recommend them to their citizens – regardless of their health condition.

Despite retooling to make more mask themselves, producers outside China won’t be able to satisfy anticipated demand anytime soon. The Wall Street Journal reported on April 2 that mask producers in the US could make 50 million N95 masks (which could filter out 95% of airborne particles) a month. But that is just a sixth of what the US health department estimates that healthcare workers need monthly to fight the pandemic. The shortage has seen the Trump administration clashing with allies such as Germany and Canada over supply of the same N95 masks from Minnesota-based 3M and 166 million masks will now be routed from 3M’s factories in China to the US over the next three months.

China was making about half the world’s surgical masks before the coronavirus outbreak began and it has expanded production capacity nearly 12-fold since then. One reason why it has been able to scale up so fast is that it has managed to secure a key component known as melt-blown nonwovens. Made of polypropylene, the material serves to seal all gaps through which microscopic particles might pass and is therefore essential to an N95 respirator’s filtration efficiency.

While a standard surgical mask offers one layer of the filter, a N95 model provides at least three.

Given that polypropylene is a by-product of oil refining processes, it is perhaps not too surprising that Sinopec is now a key manufacturer of melt-blown nonwovens.

Last month the state-owned refiner revealed plans to spend Rmb200 million on 16 assembly lines making the fabric in Beijing and Jiangsu. Eight are expected to be in operation by the end of April, and four more by the end of May. Together they can produce 18 tonnes of melt-blown nonwovens a day, which could support the production of 18 million medical masks.

With relatively few big market players such as PetroChina, Shandong Junfu and Tianjin Teda offering competition, the prices of melt-blown nonwovens could rise in the medium term. They have already jumped up to 10 times to Rmb200,000 per tonne since the coronavirus outbreak started, with companies asking for as much as Rmb500,000 per tonne for the highest-quality production, Securities Daily reports.

In the meantime, more masks are reaching the US from Chinese suppliers. On the first day of April 1.2 million N95 protectors secured by Tencent were flown to hospitals in Boston and New York on the New England Patriot’s team jet. After fraught negotiations the Shenzhen local government said the plane could land for three hours to load the masks, the Wall Street Journal reported – but for quarantine reasons none of the US crew could have contact with any Chinese. As Covid-19 continues to spread, there will be more rescue missions carrying masks from China.

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