By Fu Xiangsheng, China Petroleum and Chemical Industry Federation

Progresses and concerns

China’s petroleum and chemical industry performed soundly in 2022, with main economic indicators better than expected. In the first nine months of 2022, operating income of the domestic petroleum and chemical industry was up 18.5% YoY to RMB12.25 trillion, equivalent to annual income in 2019; total profit up 7.6% YoY to RMB979.43 billion, 46.5% higher than annual profit of RMB668.37 billion in 2019; foreign trade value up 27.4% YoY to US$787.04 billion, exceeding 2019’s total, i.e. US$722.2 billion. In 2021, operating income reached RMB14.45 trillion, total profit RMB1.16 trillion and foreign trade value US$860 billion.

However, some concerns still exist. First, in the first nine months of 2022, the average price of Brent crude oil soared 55.5% YoY to US$105.3/barrel – a main factor that dragged profit of the refining sector down by 65.6% YoY and decreased profit growth of the chemical sector to only 0.3% YoY, far lower than 112% of the petroleum and natural gas sector. Second, profit growth of the domestic petroleum and chemical industry fell rapidly: profit was up 24% YoY in H1 2022; January-July, up 16.5% YoY; January-August, up 10.9% YoY; January-September, up 7.6% YoY; January-October, up 3.2% YoY. The situation was worse in the chemical sector, profit of which was up 14.1% YoY in H1 2022, up slightly 0.3% YoY in the first nine months but down 4.4% YoY in the first 10 months, the first decrease of the year.

Third, enterprises mainly engaged in chemicals were more negatively impacted by high prices of crude oil, natural gas, etc. More specifically, Sinopec Corp. achieved operating income of RMB2.74 trillion in 2021, up 30.2% YoY, and net profit surged more than 100% YoY to RMB71.2 billion. In the first nine months of 2022, the company’s income rose 22.6% YoY to RMB2.45 trillion, but net profit fell 5.6% YoY to RMB56.66 billion. Operating income of Hengli Petrochemical increased 29.9% YoY to RMB197.97 billion in 2021, and net profit rose 15.4% YoY to RMB15.53 billion; in the first nine months of 2022, income was up 12.5% YoY to RMB170.36 billion, but net profit dropped 52.1% YoY to RMB6.09 billion.

Enterprises with energy as main business benefited from high prices of crude oil. Operating income of PetroChina was up 35.2% YoY to RMB2.6 trillion and net profit skyrocketed 385% YoY to RMB92.17 billion, both in 2021; in the first nine months of 2022, the company’s income rose 30.6% YoY to RMB2.46 trillion, and net profit grew 60.1% YoY to RMB120.27 billion. CNOOC Limited achieved operating income of RMB222.1 billion (up 59.1% YoY) in 2021, and net profit of RMB70.3 billion, surging 182% YoY. In the first nine months of 2022, the income increased 79% YoY to RMB311.1 billion, and net profit jumped 106% YoY to RMB108.77 billion.

Challenges 

Global economic growth rate in 2022 was around half of 2021’s 6.1%, due to factors like regional conflicts, Covid-19, etc. Forecasts from OECD, IMF, etc. for 2023 are more pessimistic. IMF forecasts that global economy will grow 2.7% in 2023. In detail, economy of the US is expected to increase 1%, Japan 1.6%, the UK 1.2% and Canada 1.5% - lower than China’s 4.4%, India’s 6.1%, Iran’s 2% and Saudi Arabia’s 3.7%.

Regional conflicts, which occurred in February 2022, led to energy crisis. Natural gas is vital for European enterprises – an important part of global chemical industry, especially in the areas of new chemical materials and fine chemicals. Due to natural gas shortage, they had to contend with many unstable factors (e.g. during fertilizer production) or cut back production, which will inevitably take a toll on the world’s petrochemical industry and supply chains. More worryingly, the situation can hardly be changed in 2023.

In addition, there will be greater downward pressure on prices of major petrochemical products in 2023. Performance of the petroleum and chemical industry is closely related to crude oil prices. Operating income of China’s petroleum and chemical industry was up 1.3% YoY and total profit was down 14.9% YoY, both in 2019, when the average price of Brent crude oil fell 9.9% YoY to US$64.26/barrel; in 2020, operating income was down 8.7% YoY and total profit down 13.5% YoY, with the average price of Brent crude oil dropping 35.05% YoY to US$41.74/barrel; in 2021, the average price of Brent crude oil shot up 69.4% YoY to US$70.72/barrel, helping operating income grow 30% YoY and total profit skyrocket 126.8% YoY. In 2022, after exceeding US$139/barrel in March and fluctuating around US$110/barrel for several months, the average price of Brent crude oil fell to below US$100/barrel in September, US$93.4/barrel in October and to US$83/barrel on December 5. Among 46 kinds of domestic inorganic chemicals investigated, the number of chemicals seeing average price decrease reached 22 in October, up 10 from September; among 87 kinds of organic chemicals investigated, the number of chemicals seeing average price decline was 54 in October, up 6 from September.

Opportunities in 2023

China will continue to optimize business environment in 2023, when various industries (e.g. logistics industry) will gradually be recovered from the coronavirus and many key projects related to 14th Five-year Plan will be kicked off. China has high demand and huge potential: 1) domestic grain industry needs a large quantity of agrochemicals (e.g. fertilizers, pesticides and agricultural films); 2) auto industry is a major consumer of synthetic materials, sealing/bonding materials, coatings, tires, etc.; 3) mobile phone industry has large demand for film materials, display materials, electronic chemicals, etc.; 4) aviation market consumes a large number of new chemical materials, aviation organic glass, aircraft coatings, etc. Further, China is actively developing advanced manufacturing, new energy, electronic information, biotechnology, digital economy and aerospace industries. All of these will bring ample opportunities to the domestic petroleum and chemical industry.

In spite of the coronavirus, China consumed more than 130 million tons of synthetic resin in 2021. In the first nine months of 2022, domestic consumption of synthetic resin approached to 96 million tons, that of oil products reached 246 million tons, and that of methanol exceeded 52 million tons. Domestic consumption of crude oil is forecast to exceed 720 million tons in 2023, when the nation may consume more than 320 million tons of oil products and around 130 million tons of synthetic resin. Further, domestic real estate industry is expected to rebound in 2023 – a driving force for building material industry, home appliance material industry, etc. Domestic markets will support development of the petroleum and chemical industry continually.