In 2019, the petroleum and chemical markets are facing greater challenges. Especially in the first half of the year, the contradictions between supply and demand in some markets intensified, and prices may be low and volatile.
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2018 is an extraordinary year. Facing the complex and severe external environment, China’s petroleum and chemical industry deepens the structural reform of supply side, vigorously promotes the optimization and upgrading of industrial structure and innovation drive, and new positive changes have taken place in the quality and efficiency of the industry’s economic operation.
Income and Profit of the Industry Increased by a Big margin
According to the data of the National Bureau of Statistics, by the end of 2018, there were 27813 Enterprises above the scale of petroleum and chemical industries in China, with an annual increase of 4.6% and 0.6 percentage points; the main business income of 12.4 trillion yuan, an increase of 13.6%; the total profit of 839.38 billion yuan, an increase of 32.1%, which accounted for 12.1% and 12.7% of the total profit of the national scale industry; and the export delivery value of 701.87 billion yuan, respectively. The total assets increased by 5.3% to 12.81 trillion yuan, accounting for 11.3% of the total assets of large-scale industries in China. The ratio of assets to liabilities was 54.56%, down by 1.4 percentage points over the previous year.
In 2018, the profit margin of the main business income of the petroleum and chemical industries increased by 0.95 points, while the cost of the main business income per 100 yuan was 81.32 yuan, down by 0.5 yuan.
Specifically, the operation of the three business sectors is as follows:
1. Oil and gas exploitation. By the end of 2018, 286 Enterprises above the scale of petroleum and natural gas exploitation industry had increased their cumulative value-added by 5% and 5.5 percentage points; their main business income was 1.01 trillion yuan, up 21.3%; their total profit was 159.8 billion yuan, up 58.2%; their export delivery value was 1.62 billion yuan, up 0.7%; their total assets amounted to 219 trillion yuan, up 1.7%; their assets-liabilities ratio was 42.78%, down by 406 percentage points.
The total output of crude oil and natural gas in the year was 334 million tons (oil equivalent), an increase of 2.4% over the previous year. Among them, crude oil production was 189 million tons, down by 1.2%; natural gas production (CBM, the same below) was 161.02 billion cubic meters, up by 7.5%; liquefied natural gas production was 900.2 million tons, down by 0.9%. The year-round imports of crude oil amounted to 462 million tons, an increase of 10.1%, with an external dependence of 70.8%. The imports of natural gas amounted to 125.72 billion cubic meters, an increase of 31.9%, and an external dependence of 43.2%.
In 2018, the profit margin of oil and gas exploitation owners’operating income increased by 12.98 points, and the cost of operating income per 100 yuan was 64.79 yuan, down by 12.59 yuan.
2. Petroleum processing industry. By the end of 2018, 1210 Enterprises above the scale of petroleum processing industry had increased their added value by 6.4% and increased by 0.3 percentage points; their main business income by 3.88 trillion yuan, up by 22.5%; their total profits by 169.74 billion yuan, down by 3.4%; their export delivery value by 139.6 billion yuan, up by 82%; their total assets by 224 trillion yuan, up by 10.7%; and their asset-liability ratio by 60.73%, down by 0.02 percentage points.
The annual crude oil processing volume was 604 million tons, an increase of 6.8%; the output of refined oil (gasoline, coal and diesel together, the same below) was 360 million tons, an increase of 3.6%, of which the output of diesel oil was 174 million tons, a decrease of 19%; the output of gasoline was 139 million tons, an increase of 8.1%; the output of kerosene was 47.73 million tons, an increase of 12.7%. In 2018, 46.08 million tons of refined oil were exported, an increase of 12.8%.
In 2018, the profit margin of oil processing owners’operating income was 4.38%, down by 1.17 points, and the cost of operating income per 100 yuan was 80.2 yuan, up by 3.53 yuan.
3. Chemical industry. By the end of 2018, 24821 Enterprises above the scale of chemical industry had accumulated an increase of 3.6% in value added, which was the same as the previous year; their main business income was 7.27 trillion yuan, up 8.6%; their total profit was 50.65 billion yuan, up 16.3%; their export delivery value was 537.48 billion yuan, up 13.1%; their total assets amounted to 788 trillion yuan, up 4.8%; their asset-liability ratio was 55.85%, down by 133 percentage points. Investment grew by 6% throughout the year, ending two consecutive years of decline.
In 2018, China’s total output of major chemical products increased by about 2.3%, down 0.2 percentage points from the previous year. Among them, the total output of chemical fertilizer (converted to pure) was 54.596 million tons, down by 5.2%; the output of sulphuric acid was 86.364 million tons, up by 1.8%; the output of caustic soda was 34.220 million tons, up by 0.9%; the output of ethylene was 18.41 million tons, up by 1%; the output of pure benzene was 8.276 million tons, up by 47.56 million tons, up by 2.9%; the total output of synthetic materials was 158 million tons, up by 7.5%; the output of tyres was 816 million tons, up by 1%.
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In 2018, the profit margin of the main business income of the chemical industry increased by 0.46 points, while the cost of the main business income per 100 yuan decreased by 0.56 yuan.
Four Characteristics of Industry Operation
1. Benefits have maintained a relatively rapid growth trend. In 2018, the benefits of the petroleum and chemical industries continued to grow rapidly. Among them, the profit of oil and gas exploitation industry shows a restorative growth momentum, while the chemical industry continues to improve.
Profits grew rapidly. In 2018, the total profit of the whole industry grew by more than 30%, which was significantly ahead of the average profit growth rate of the national scale industry (10.3%). Among them, the profit of oil and gas exploitation industry increased by 5.8 times, with the contribution rate exceeding 65%. The industry’s loss situation has been improving. The data show that in 2018, the loss of loss-making enterprises in the whole industry was 116.23 billion yuan, down 36.9%. Among them, the oil and gas exploitation industry declined by 63% and the chemical industry by 14.4%. The loss of the whole industry was 16.7%, which was 2 percentage points smaller than that in the first half of the year.
Income growth was generally stable. Revenue of the whole industry increased by 13.6% in the whole year. From the perspective of the trend, the growth rate in the first quarter was 11.4%, 13.2% in the first half, and 14.8% in the first three quarters. The fluctuation in the whole year was small and steady. Among them, the chemical industry grew by 8.6% in the whole year, 9.8% in the first quarter, 10.3% in the first half and 10.7% in the first three quarters.
2. Continue to optimize and upgrade the economic structure. Growth structure continues to be optimized. The contribution rates of basic chemical raw materials, synthetic materials and special chemicals manufacturing to income growth were higher, reaching 35% (of which organic chemical raw materials contributed 27.1%), 30.9% and 18.6% respectively. It is noteworthy that the value-added of emerging industries is growing rapidly, with the value-added of biomass material manufacturing increasing by 211.9% in 2018 and 37.6% in biomass fuel manufacturing.
Increased growth efficiency. First, the energy consumption per unit has continued to decline. In 2018, the revenue of petroleum and chemical industries declined by 10% in terms of standard coal consumption per 10,000 yuan, including 6.3% in chemical industry, 16.6% in petroleum processing industry and 11.3% in oil and gas exploitation industry. Second, energy consumption is declining and energy efficiency is rising. Thirdly, the profitability of the industry has been continuously improved, with the profit margin of the main business of the industry reaching 6.77%, the highest since 2012; among them, the profit margin of the chemical industry’s business income reaching 6.89%, which is the best level in history.
The structural reform on the supply side has been steadily promoted. The asset-liability ratio of the petrochemical industry is 1.4 percentage points lower than that of the previous year, and 1.97 percentage points lower than that of the national industrial asset-liability ratio in the same period. The unit cost dropped obviously, the main income cost of 100 yuan in the whole industry dropped 0.5 yuan, and the chemical industry dropped 0.56 yuan.
3. Exports are better than expected. According to statistics, the export delivery value of Enterprises above the scale of petroleum and chemical industries increased by 22% in 2018, an increase of 5.9 percentage points faster than that of the previous year. The export delivery value of petroleum processing industry increased by more than 80% and that of chemical industry by 13.1%. Under the background of the escalating global trade war, the performance exceeded expectations.
Export structure optimization. Exports of specialty chemicals, synthetic materials and organic chemical raw materials increased rapidly. In 2018, the export delivery value of the above three areas increased by 19.7%, 17.2% and 21.6%, respectively, which was significantly higher than the average growth rate of the chemical industry, accounting for 19.7%, 16.7% and 12.7% of the export delivery value of the chemical industry, and increased by 1.1%, 0.6 and 1 percentage point, respectively. The proportion of traditional export-oriented products such as chemical fertilizers and rubber products continued to decline. The annual fertilizer export delivery value decreased by more than 5%, accounting for only 2.3%, 0.5 percentage points lower than the previous year; the rubber product export delivery value increased by only 4.4%, accounting for 28.3%, down by 2.4 percentage points. The proportion of export delivery value in the whole industry increased by 19.9%, 6.6 percentage points higher than the previous year.
4. The growth of energy consumption is accelerating. In 2018, China’s apparent consumption of crude oil and natural gas totaled 903 million tons (oil equivalent), an increase of 9.7%, an increase of 2.2 percentage points faster than the previous year, the largest increase since 2011. Apparent crude oil consumption reached 648 million tons, an increase of 7%, an increase of 2 percentage points over the previous year. The apparent consumption of natural gas is 283.35 billion cubic meters, with a growth rate of 17.3%, which is 2 percentage points faster than that of the previous year and the largest increase in recent years, accounting for 28.2% of the total apparent consumption equivalent of crude oil and natural gas, and 2 percentage points higher than that of the previous year. The apparent consumption of refined oil was 319 million tons, an increase of 2.5%. The growth rate was basically the same as that of the previous year. Among them, the apparent consumption of gasoline was 126 million tons, an increase of 7.2%; kerosene was 379.93 million tons, an increase of 12.8%; and diesel oil was 156 million tons, a decrease of 3%.
Four New Situations and Issues Needing Attention
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First, the external environment has undergone profound changes. Firstly, the Trump Administration of the United States has vigorously pursued the unilateral hegemonic policy of “American priority” and frequently imposed sanctions on other countries, which has seriously impacted on economic globalization and multilateral framework mechanism. World trade barriers continue to deepen. On December 11, last year, the WTO issued its annual report, pointing out that from mid-October 2017 to mid-October 2018, WTO members implemented 137 new trade restrictions, with an average monthly increase of about 11. At the same time, the total trade covered by the trade restriction measures implemented by the members amounted to $588.3 billion, more than seven times larger than that of the previous year (mid-October 2016-mid-October 2017). The profound changes in the external environment will further accelerate the restructuring of the global economic structure.
Second, the market shocks sharply. In 2018, the oil and chemical market fluctuated greatly, especially after entering the fourth quarter, the market fluctuated significantly, and some commodity prices continued to fall sharply. Monitoring data show that the monthly average spot prices of WTI crude oil and Brent crude oil in November fell by 15.2% annually, while the decline of oil prices continued to accelerate in December, with 18.9% annually and 17.8% annually, respectively. The average price of crude oil futures delivered by the Shanghai Shipping Center in December fell 19.1% annually, while that for January 2019 dropped 11.3%. Declines in some bulk organic chemicals and synthetic materials continued to widen in December. For example, propylene average ring fell by 8.6%, benzene by 14.6%, methanol by 22.9%, polypropylene average ring by 12.7%, acrylonitrile by 22.4%, styrene-butadiene rubber by 5.7%, etc. Prices of bulk products fluctuated and fell sharply, seriously damaging market confidence and expectations.
Third, the growth of petrochemical market demand is weak. At present, besides energy, the growth of petrochemical market demand is generally weak. Apparent diesel consumption declined by 3% in 2018 and increased by 1.3% last year, indicating that macroeconomic activity is slowing down. The growth rate of total output of major chemicals is only 2.3%, which is also one of the lowest in history, indicating that the overall growth of market demand for chemicals is weak.
Fourthly, there is insufficient investment motivation. Although after the fourth quarter, investment in chemical raw materials and chemicals manufacturing industry resumed growth trend, but the annual growth rate was only 6%, still below the average growth rate of 6.5% of the national industrial investment, industry investment rebound momentum is still obviously insufficient.
Market Trend and Economic Growth Forecast
In 2019, the world economy is still facing great uncertainties and downward pressure. International authorities generally believe that growth may slow down. Judging from the macroeconomic situation at home and abroad and the current trend of major commodity markets, the petroleum and chemical markets will face greater challenges in 2019. Especially in the first half of the year, the contradiction between supply and demand in some markets intensified, and prices may be low and volatile. It is estimated that the total price level of oil and gas exploitation industry will decrease by about 10% and that of chemical industry by about 3%.
1. The momentum of international oil price rise is difficult to continue.
In 2018, international oil prices (Prussian spot, the same below) continued to rise sharply, reaching a four-year high. Although oil prices continued to fall sharply in the fourth quarter, the annual average price of WTI crude oil rose by 28.5% to $65.25 per barrel; Brent crude oil rose by 32.2% to $71.32 per barrel; Dubai crude oil rose by 31.6% to $69.63 per barrel; Shengli crude oil rose by 31% to $63.64 per barrel. The average annual price of crude oil in the four places was $67.46 per barrel, up 30.9%.
In 2018, global crude oil consumption was about 4.523 billion tons, an increase of 1.5%. In 2019, the global economic growth rate is expected to slow down. The International Monetary Fund predicts 3.7%. Global crude oil demand will continue to grow at a low speed. Global consumption is expected to grow at about 1.3% in 2019, with a total consumption of about 4.581 billion tons. Supply and demand remain relatively loose. In addition, the sanctions imposed by the United States on Iran and other oil-producing countries in 2019, the implementation of OPEC’s output reduction, geopolitical conflicts and the increase of U.S. oil and gas production will have a significant impact on the global energy supply and demand market. Judging comprehensively, the rising momentum of the international crude oil market in 2019 may be frustrated and the price will fall. The average annual price of Brent crude oil is expected to be around $65 per barrel.
2. The market price of basic chemical raw materials will fall somewhat.
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In 2018, the domestic basic chemical raw material market continued to be in a good situation, with steady growth in demand, strong price rise and continuous improvement in industry efficiency. Among the 39 main inorganic chemical raw materials monitored, the annual average price increased by 21 kinds, accounting for 53.8%, and 57 kinds, accounting for 67.9%, of the 84 main organic chemical raw materials monitored. From the point of view of price trend, the volatility of commodity market is greater, especially the amplitude of organic chemical raw materials. In terms of inorganic chemical raw materials, the average price of sulphuric acid (98%, purified water) market was 403 yuan/ton, up 14%; nitric acid (98%) market was 1685 yuan/ton, up 4.8%; caustic soda (tablet alkali, > 96%) market was 4243 yuan/ton, up 11.6%; the average price of soda (heavy ash) was 1963 yuan/ton, down 6.3%; the average price of calcium carbide was 2898 yuan/ton, up 6.5%; the average price of sulphur yellow was 1228 yuan/ton, up 30.6%. For organic chemical raw materials, the average market price of ethylene (Northeast Asia) was $1265.7 per ton, up 6.6%; the average domestic propylene market was $8627 per ton, up 14%; the average price of pure benzene (oil grade) was $6516 per ton, down 4.1%; the average price of toluene (oil grade, water purification) was $5993 per ton, up 9.6%; the average price of methanol (first grade, water purification) was $2921 per ton, up 10.2%; the average price of ethylene glycol (high grade) was $7262 per ton, up 10.2%. Up 3.4%. In 2018, China’s consumption of basic chemical raw materials increased by about 3.5%, which was down from the previous year. Among them, inorganic chemical raw materials increased by about 2%, organic chemical raw materials increased by about 4.5%. Overall, the effective supply of organic chemical raw materials in China is still seriously insufficient, and the import volume is large. It is expected that the market demand for basic chemical raw materials in China will continue to grow steadily in 2019. The growth rate is roughly the same as that of last year. The import volume of organic chemical raw materials may continue to decline, but the absolute value is still very high.
The supply and demand structure of the basic chemical raw material market will continue to be optimized, and the total price level of the whole year will be lower than that of the previous year. It is estimated that the average annual price of caustic soda (flake alkali) market will fall by 5.7%, the average price of soda (heavy ash) will be flat, the average price of calcium carbide will fall by 3.4%, the average price of propylene will fall by 1.5%, the average price of pure benzene (oil grade) will be about 6500 yuan/ton, which is roughly the same as the previous year; the average price of toluene (oil grade, water purification) will fall by 4.9%, the average price of ethylene glycol (excellent grade) will fall by 2.2%, and the average price of methanol (first grade) will fall by 0.7%.
3. The synthetic material market will rebound from high volatility
In 2018, the synthetic materials market as a whole has improved, with a large price increase, but also a large fluctuation, and the trend is polarized. Comparatively speaking, the overall price of synthetic fiber raw materials rose relatively strong, while synthetic rubber was weak. In terms of synthetic resins, the average market price of polyvinyl chloride (LS-100) in 2018 was 7002 yuan/ton, down 2.2%; the average price of high density polyethylene (5000S) was 11002 yuan/ton, up 6.5%; the average price of polypropylene (F401) was 9693 yuan/ton, up 11.8%; the average price of PA66 (101L) was 33158 yuan/ton, up 44.3%; the average price of POM (F20-03) was 15148 yuan/ton, up 14.7%; the average price of polyester chips (filament grade half-gloss) was 8476 yuan/ton, up 14.7%. The increase was 14.4%. In synthetic rubber, the average market price of styrene-butadiene rubber (grade I) was 12398 yuan/ton, down 14.6%; that of cis-butadiene rubber (1500) was 12728 yuan/ton, down 14.2%; that of nitrile rubber (26A) was 21422 yuan/ton, up 7.5%; that of chloroprene rubber (A-90) was 28031 yuan/ton, up 22.1%. For synthetic fiber raw materials, the average market price of caprolactam (> 99.9%) was 16,323 yuan/ton, up 5.2%; that of acrylonitrile (> 99.9%) was 14,930 yuan/ton, up 23.1%; that of terephthalic acid was 6,533 yuan/ton, up 24.4%.
In 2018, the consumption of synthetic materials market in China maintained a relatively rapid growth, with the total apparent consumption exceeding 200 million tons for the first time, an increase of about 7%, the same as the previous year, and the growth rate of synthetic resins was about 4%. Generally speaking, the gap between supply and demand in China’s synthetic materials market is large, especially in the high-end market. Imports still dominate. Although the total imports of the three major synthetic materials have declined, the absolute imports are still relatively high. It is expected that in 2019, China’s synthetic material market consumption will continue to grow at a relatively fast rate of about 6%, while the import volume will remain at a relatively high level, but will maintain a downward trend, and the domestic market will remain the main target of global competition. Judging comprehensively, it is estimated that the price of synthetic materials market in 2019 may show a pattern of high volatility, with varying degrees of callback. Among them, the average annual price of polyvinyl chloride (LS-100) was the same as the previous year, the average price of high density polyethylene (5000s) fell 5.8%, the average price of polypropylene (F401) fell 8%, the average price of caprolactam dropped 9.5%, the average price of acrylonitrile (> 99.9%) fell 11.2%, and the average price of styrene butadiene rubber (1500) was the same as the previous year.
4. Fertilizer market prices will fall slightly
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In 2018, China’s fertilizer market stably rebounded, and the prices of major varieties increased significantly. Among them, urea and potassium fertilizer increased significantly. Market monitoring showed that the average annual price of urea market in China was 1996 yuan/ton, a new high of 18.9% in the past five years; diammonium phosphate 2667 yuan/ton, a 7.3% increase; monoammonium phosphate 2278 yuan/ton, a 12% increase; domestic potassium chloride 2281 yuan/ton, a 16.4% increase; sulfur-based compound fertilizer (45%) 2433 yuan/ton, a 7.5% increase. In 2018, domestic market-oriented fertilizer consumption continued to decline, with apparent total consumption falling by 4.9%, of which urea decreased by about 6%. From the point of view of export delivery value, although the decline in the second half of the year rebounded, the annual decline still reached 5.4%, and the pressure of domestic market competition continued to increase.
At present, although the structural contradictions in China’s fertilizer market are still prominent, the structural adjustment has been steadily promoted, the management level and product quality have been continuously improved, the cost has been reduced, and the benefits of the industry have been significantly improved. The total consumption of chemical fertilizer in China has reached the ceiling. Cost will still be the main factor supporting the price change of chemical fertilizer market in a certain period of time in the future. In 2019, it is expected that China’s total fertilizer consumption will remain around 51 million tons (converted to pure), unchanged from the previous year; export is likely to improve, but growth is limited; and the overall price level will be revised back. Urea prices are expected to fall by 4.8%, diammonium phosphate by 2.5%, domestic potassium chloride by 3.5% and sulfur-based compound fertilizer by 3.4%.
5. Tire market will continue to be weak
In 2018, the domestic tire market continued to be weak, export growth declined, and prices declined in an all-round way, including car tires. Generally speaking, the contradiction between supply and demand in China’s tire market is prominent. Demand is slowing down, cost is rising, price is low, competition is intensifying, and industry efficiency is low. Market monitoring showed that the average annual price of truck meridian tire (12.00R20-18PR) was 2158 yuan per strip, down 0.9%; that of car meridian tire (215/55R16) was 572 yuan per strip, down 6.2%; that of light truck bias tire (7.50-16-14PR) was 654 yuan per strip, down 3.2%. China’s tire industry relies heavily on foreign demand market, international trade protectionism prevails, Sino-US trade friction intensifies, China’s tire export pressure increases sharply, and business difficulties continue to increase. In 2018, China’s tire export delivery value growth slowed down significantly, increasing by 5.1%, down 8.1 percentage points from the previous year. The structural contradiction of tire export in China is still prominent. The products are mainly concentrated in the middle and low-end market, and the competition is fierce. It is expected that the global tire market will still face protectionist barriers in 2019. Prices may continue to oscillate at a low level. Domestic tire market will continue to be weak and stable in general. With cost support, annual average prices may be roughly equal to or slightly higher than the previous year.
According to the analysis and judgment of macroeconomic operation trend, industry production, price trend and structural adjustment changes, it is preliminarily estimated that the main business income of petroleum and chemical industry will increase by about 8% in 2019, of which the business income of chemical industry will increase by about 6%. The total profits of the industry were flat or slightly increased compared with the previous year. Export delivery value increased by about 15%. The apparent consumption of crude oil, natural gas and caustic soda increased by about 5%, 15%, 3% and 1% respectively, while that of diesel oil, fertilizer, 4.5%, ethylene and caustic soda increased by about 4%.
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