The Big V Type Reversal in the Chemical Market in 2017

By Chen Hong, Society of Coatings and Finishes of CIESC

In 2017, the chemical market generally showed a trend of rebound after falling. As the market went up too fast in the previous year, it began to pull back in mid February in 2017 and reached the lowest point of 4 323 on May 11. Due to the rebound of crude oil and more stringent domestic environmental inspection, the market opened up the uplink road and continued to go high. The China's chemical price index (CCPI), which was published online by the chemical industry, showed a trend of "V", which ended at 5 279 point at the end of last year, up 5.1%. See details in Figure 1. The total number of products increased by 104, accounting for 65% of the total products, and the total number of products dropped by 52, accounting for 32.5% of the total products, and the total number of flat products was 4, accounting for 2.5% of the total products. For details, see table 1 and table 2.

Figure 1  The trend of China's chemical product price index (CCPI)

Products in price rising list

   Hydrogen peroxide
   In 2017, the market performance of hydrogen peroxide was eye-catching. The price rose slightly from January to September. At the beginning of October, the price began to go up sharply, and reached the highest level on December 14 (ton price, the same below), with a 162% gain in the year. See details in Figure 2. The most important reason for the promotion of market prices is the limited start caused by the environmental inspection. In the fourth quarter, part of the production enterprises in North China and Shandong area started to decrease significantly, and the load of papermaking, printing and dyeing and caprolactam plants at downstream was relatively high, and the market demand side increased. The fundamentals were good and supporting prices were going up.

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Figure 2  The price trend of hydrogen peroxide in 2017

   Butanone
   In 2017, the market of butanone quickly went up, the price seesawed up and down at low level from January to July and the first round of the big rise occurred in August. At the end of July, devices of Shell located in Holland Pernis were on fire, including 90 thousand tons of butanone device, and the European market prices soared to pull up the domestic market. In November, the butanone market had been greatly affected by the Supply side tightening to rise up sharply. At the end of October, more than 200 thousand tons of production capacity closed, including Lanzhou petrochemical plant. The circulation of the supply is very tight, and the support price started to rash up continuously at the end of October, and ended at RMB12 700 at the end of the year, with a total increase of 88.1%.
   Coal tar
   The coal tar market also rose greatly in the fourth quarter of 2017. The price has broken through the historical record and ended at RMB3 545 at the end of the year, with a total increase of 81.8%. Since the winter, in addition to increased demand for heating, coking enterprises around were affected limited peak production, operating rate was low, and supply failed to meet the demand. At the same time, deep processing enterprises at downstream actively chase when the price went up, in turn further to support the market price of coal tar rising.

   Products in price dropping list

   Butadiene and rubber
   In 2017, butadiene, which rose up more than 200% in 2016, had basically returned to the level before June 2016, and ended at RMB9 950 at the end of the year, with the decline of 49.5%. According to the trend of the whole year of 2017, the market price fell the most sharply from February to May. Because of the early butadiene market in a strong uptrend, downstream buyers in bullish expectations had led to the user to add inventory. As a result, the inventory is adequate, and the overall demand increased slowly. Manufacturers were more difficult to ship, the price was difficult to maintain high, and since February, it had been downgraded. In addition, the terminal tire enterprises were restricted by environmental inspection and other factors. The trend of the market had been further suppressed. The downstream synthetic rubber fell following the reduction in the trend of butadiene. According to statistics, polybutadiene rubber and styrene butadiene rubber 1502 fell 41% and 32.8% respectively. Related products, the performance of natural rubber futures was not good, and combined with the trend of synthetic rubber in downturn, the market also showed a downward trend. During the statistics period, the No1 standard rubber, cigarette rubber and standard rubber 3L decreased by 20.4%, 24.8% and 28.6% respectively.
   Acrylic acid and ester
   In 2017, the products of acrylic acid and ester seesawed to low level, acrylic acid, butyl acrylate, ethyl hexyl acrylate and methyl acrylate went down to 29.5%, 24.4%, 19.3% and 13.8%. Among them, the decline was greater from January to March, the rise of the acrylic market in 2016 was too high, the pressure of purchase cost downstream was larger, the bearers had a short mindset, and the quotation is gradually loosened. In addition, Wanzhou petrochemical, Shanghai Huayi and Fujian coastal installations, which stopped production in earlier period, started construction one after another, and the overall operation rate of acrylic acid market increased significantly, which led to the accelerated decline of the market in March. The price rebounded during July to September, but because of lack of basic support, the prices began to fall back in mid September and continued to fall.
   LDPE
   In 2017, the LDPE market was downgraded and ended at RMB10 150 at the end of the year, with a decline of 17.5%. The market was not performing well. During the period of January to March, the stock of domestic manufacturers was high. In addition, the import supply came to Hong Kong. The contradiction between supply and demand became more and more obvious, and the decline was most obvious.

Other key products

   Methanol
   In 2017, the market of methanol showed the trend of "V", which ended at RMB3 570 at the end of the year, with an increase of 14.1%. The upward trend is very strong in November. Due to the limited production in winter, the devices of Shanxi Lubao and Tangshan Zhongrun ran for reducing load, and the starting rate of methanol in North China gradually declined, and had dropped to about 40%. The supply side of the market was tightening. In addition, maintenance of the main traffic line, Daqin line, led to the coal supply constraints, promoted the price of coal, so as to further enhance the cost of methanol. The price of methanol has risen steadily to a new high since 2014.
   Polyester raw material
   The market of polyester raw materials appeared deviation. Ethylene glycol rebounded after dropping down deeply, but the intensity was not as early decline, so fell to 7.7% at the end of 2017. As a product with a high degree of dependence on imports, the import of ethylene glycol increased significantly from February to April. Customs data showed that the import of ethylene glycol was 2.073 million tons during February to April, while that in the same period in 2016, it was only 1.574 million tons, with an increase of 31.7%. In addition, the downturn in demand for downstream terminals and the increase in port inventory had brought price dropping to ethylene glycol, leading to a sharp decline in prices in the first quarter. PTA basically showed the "V" type trend, and the market shock declined from January to May, and began to rebound in June. At that time, part of the equipment such as Shanghai petrochemical, Ningbo Yisheng and other companies carried out maintenance, which was good news to market, providing the opportunity to rebound. Fujian Jialong Petrochemical began to carry out maintenance at the same time in July. In the meantime, Yangzi Petrochemical, Hanbon petrochemical and Peng Wei Petrochemical delayed restart, the supply side support was still strong. According to statistics, PTA ended at RMB5 650 within this years, with the increase of 7.6%.
   C3 industry chain
   In addition to acrylic acid and ester products, the C3 industry chain was dominated by the rise in 2017. Propylene and acrylonitrile rose up to 5.4% and 24.5%, respectively. Supported by the lower demand of downstream demand and low level of refinery stock, the market of raw material propylene was good during the year. After the rise of acrylonitrile, the price called-back, but the increase in July to October was still higher than that of call-backs latter. There was still a rise in the year. On July 15, 80 thousand ton plant in Qilu Petrochemical shutdown for rectification, which ignited the enthusiasm of the market. In addition, Shanghai SECCO cut production for many months due to the problem of raw material supply. The output of Shandong Keluer was low, the market circulation was very limited, and the price was rising up rapidly. In the later period, with the resumed normal production of SECCO and other devices, the benefit of the acrylonitrile supply was gradually exhausted and the price started a rational call-back.
   Aromatic hydrocarbon
   The market aromatic hydrocarbon rose and fell in 2017, and the overall range was limited. During the whole year, the crude oil market went up, and WTI and Brent crude oil increased by 11.6% and 18% respectively. Under the support of crude oil cost, the price of some aromatics increased, and styrene, toluene, isomeric xylene and solvent grade xylene increased by 3%, 5.4%, 6.1% and 6.5%, respectively. The price of purified petroleum benzene fell by 5.9%. Although there was a support for the cost side, the downstream demand generally leaded to a higher inventory of the manufacturers, which inhibited the bounce in the second half of the year.
   Polyurethane raw materials
   During 2017, the market of polyurethane raw materials had undergone a hot market. Since the beginning of July, Shanghai Covestro, Fujian Petrochemical and Yantai Juli, etc. had shut down for long time or short time for maintenance, coupled with the early decline too large, TDI rebounded strongly, once reached a high level of RMB43 000, then ended at RMB38 500 at the end of the year, with an increase of 42.6%. Due to the market supply side tightening in some months, the MDI market price went up strongly by 27.1% at the end of August. In epoxide propane Market, after half a year of shock adjustment, the fourth quarter of the propylene oxide market began to force, many sets of devices stopped or reduced. The 280 thousand tons of epoxy propane plant in Shandong Binhua was reduced to 50% on December 19 due to the sewage treatment problem, and the load reduction of three Yue and Huatai plants continued. The market pressure continued to rise, driving prices up 27.8%.
   Plastic resin
   The plastic resin went slightly up in 2017. ABS, wire drawing class HDPE, acetylene method PVC and wire drawing class PP rose 6.1%, 3.8%, 3.2% and 1.6% respectively. Among them, the market increase of ABS was the most obvious, and the price of raw materials acrylonitrile and styrene were rising, forming cost support of ABS. In addition, the start rate of electrical appliances enterprises, such as refrigerator, air conditioning and other small household electrical appliances at the downstream, continued to increase. And increasing demand also boost the market.
    Liquid ammonia and urea
   The liquid ammonia market started a crazy push in the middle of August in 2017, with an increase of 37% in the year. Due to the influence of environmental factors, the production of liquid ammonia was limited and the supply was in short. In addition, the price of urea rose sharply in the later period, prompting the co-production enterprises to transfer to urea, and the market supply side was further tightened. The urea market, after the adjustment of the first three quarters, quickly rushed up and ended at RMB2 075 at the end of the year, with an increase of 25.8%. The supply of the market tightened up because the environmental inspection led manufacturers to reduce production. The supply of natural gas in winter was in short, which also caused a great blow to the start-up of urea enterprises. The enterprises in Sichuan and Chongqing area had a large area of shutdown, and there were scarce sources of circulation, with low inventory of manufacturers, so the market price was rising rapidly.
   Outlook for 2018
   It is expected that the crude oil market will still be good in 2018, but the continuing upside is very small, and international crude oil prices may run within the range of US$45~70/barrel for the whole year.
   As to the supply side, in 2017 the environmental inspection carried out like a raging fire. On January 1, 2018, "Environmental Protection Law" will be formally implemented, the impact of environmental factors will continue to ferment, some devices continue to limit or stop, and short-term market supply tightening is difficult to alleviate.
   As to the demand side, in 2017 China economy showed the overall good in the stabilization of the situation, with the expected annual GDP growth of around 6.8%, and the support of the chemical market demand was strong. Overall, in 2018, the chemical market will still remain good, and there may still be room for rise in the beginning of the year. However, due to the high position of the market, we should pay attention to the risk of falling.             

 Table1   Summary of market price of hot products

Table2   Summary of market price of key products