By You Chunyan & Gao Jinghui from CPCIF
In the first half of 2023, despite a stable production and consumption, China’s petrochemical industry saw a dual-decline in profits, imports, and exports, as well as product prices year-on-year and month-on-month. But a dual-growth was also showed in crude oil production and processing output, and the number of enterprises above state designated scale and investment.
The completion of major economic indicators
In the first half of 2023, the value added of China’s petrochemical enterprises above state designated scale jumped 5.5% year-on-year, and revenue dropped 4.4% year-on-year to RMB7.61 trillion, and profits declined 41.3% year-on-year to RMB431.09 billion, overall import and export trade decreased 7.6% year-on-year to US$476.36 billion, and the output of national oil and gas was up 3.7% year-on-year to 209 million tons (oil equivalent), the output of processing crude oil jumped 9.9% year-on-year to 364 million tons, and the output of major chemical products climbed 1.8% roughly.
1. The added value of whole industry climbed, while revenues dropped year-on-year
According to National Bureau of Statistics, as of June 2023, China has 30 239 petrochemical enterprises above state designated scale, expanding 5.5% year-on-year with 1.7 percentage points faster than the increase in industrial added value. Chemical industry saw a growth of 6.5%, with an increase of 5.4 percentage points on yearly basis and 0.5 percentage points higher than previous 5 months than previous 5 months. And petroleum refinery industry grew by 4.0%, with a gain of 11.1% year-on-year and up 0.5% than previous 5 months. The growth of petroleum and natural gas extraction industry grew 4.7%, basically flat with the same period of last year and preceding 5 months.
In the first half of 2023, the earnings for petrochemical enterprises declined by 4.4% to RMB7.61 trillion, occupying 12.1% of national scale-sized industry revenues, chemical industry by 7.7% to RMB4.27 trillion, oil, and natural gas extraction by 6.2% to RMB674.96 billion. But the earnings for petroleum refining increased 1.3%.
2. Stable energy production created diverse chemical production
Since June 2023, frequent land and air transportation has boosted oil products demand, leading to a demand spike in energy products. And diverse chemical products arose because of price, export, and downstream demand.
According to statistics, crude oil, and gas output in the first half of 2023 gained 3.7% to 209 million tons (oil equivalent), with the growth dropping 0.8 percentage points year-on-year, flat with the preceding 5 months. And the output of main chemical products climbed 1.8 percentage points, with a year-on-year growth of 2.1 percentage points, 0.8 percentage points lower than the previous 5 months.
Stable oil and gas production brought an upswing to the processing output of crude oil and the output of oil products. The output of national crude oil in the first half of this year rose 2.1 percentage points to 105 million tons, a 2% growth year-on-year, flat with previous 5 months. The output of natural gas was up 5.4% to 115.50 billion cubic meters, with a 0.4 percentage points year-on-year growth and 0.1% higher than previous 5 months. The processing output of crude oil jumped 9.9% to 364 million tons. And the output of refined oil (including gas, coal and diesel oil, the same below) increased 17.9% to 208 million tons, with the growth rising 16.8 percentage points year-on-year and 0.8 percentage points higher than preceding 5 months. And, the output of diesel increased by 21.7% to 107 million tons, and gas oil by 5.0% to 77 892 000 tons, kerosene oil by 64.4% to 22 190 000 tons.
The production of major chemical products increased, with overall output enhancing 1.8% in the first half of 2023. Domestically, the output of ethylene expanded by 3.8% to 15 426 000 tons, sulfuric acid by 0.9% to 46 842 000 tons, caustic soda by 2.5% to 2 016 000 tons, soda ash by 6.4% to 15 807 000 tons, synthetic resin by 3.7% to 57.445 million tons, and synthetic fiber monomer by 3.7% to 39 121 000 tons. Furthermore, cover tire output was up 13.9% to 475 million pieces.
For the first time, the fertilizer output dropped, followed by the decline of pesticide production. Domestic fertilizer output in the first half of 2023 was 27 933 000 tons (convert into purification, the same below), with the growth dropping 0.5%. The decline year-on-year in phosphate and potash fertilizer output extended with a drop in prices, demand and synthetic fertilizer exports. And enterprises produced on demand, with low-capacity utilization. In the first half of this year, the output of pesticide raw drugs (100%) was down 6.6% to 1.267 million tons. China's total pesticide raw drug output ranks first in the world with some products mainly exported. Foreign orders have been greatly reduced as the epidemic faded, and a backlog of products were in enterprises, which forced domestic pesticide enterprises to adjust the output accordingly.
3. Energy consumption rebounded but chemical products consumption slowed down
Domestic energy consumption in the first half of 2023 slowed down, with the consumption of major chemical products edging down. The data showed apparent consumption of crude oil and natural gas increased 7.9% to 559 million tons (oil equivalent), with a 9.3 percentage points year-on-year increase and a 3.1 percentage points higher than previous 5 months. And major chemical products consumption rose 1.7%, with a year-on-year growth of 3.4 percentage points, 0.5 percentage points lower than preceding 5 months.
Crude oil and natural gas saw a rebound in consumption. In the first half of 2023, crude oil consumption rose 9.0% to 387 million tons, natural gas climbed 5.5% to 191.67 billion cubic meters, and oil products jumped 13.5% to 187 million tons, with diesel fuel expanding 15.6% to 100 million tons, gasoline increasing 4.5% to 71 724 000 tons, and kerosene surging 57.1% to 15 573 000 tons.
The growth in domestic consumption of basic chemicals slowed down. The data showed in the first half of 2023, the apparent consumption of basic chemical raw material increased 2.4%, of which inorganic and organic chemical raw materials climbed by 2.8% and 1.7% respectively. Among the main basic chemical raw materials, the apparent consumption of ethylene increased by 2.2% to 15.695 million tons, sulfuric acid by 1.3% to 46 838 000 tons, caustic soda by 2.6% to 19 877 000 tons, soda ash by 6.3% to 15 704 000 tons. And the total apparent consumption of synthetic materials climbed by 1.8% to 109 million tons, synthetic resin by 1.9% to 64 175 000 tons, synthetic rubber by 4.9% to 7 129 000 tons, synthetic fiber mono (polymer) by 1.0% to 37 649 000 tons. Overall, with downstream demand recovery, the consumption for most of basic chemical products kept going up, but was a laggard when compared with the growth in the same period, and the demand recovery was fall shy of people’s forecasts.
Overall fertilizer apparent consumption dropped. And during the same period, national fertilizer consumption (convert into purification, the same below) declined 2.6% to 26 825 000 tons.
4. The investment keeps growing
According to National Bureau of Statistics, concerning manufacturing investment, chemical raw materials and products expanded 13.9%, with growth decreasing1.2 percentage points year-on-year, 2.0 percentage points down from previous 5 months. And the extraction of oil and natural gas stepped up 22.4%, 8.6 percentage points higher year-on-year, increasing 0.4 percentage points than preceding 5 months. And the investment of oil, coal and other fuel processing industries declined 26.4% (versus an increase of 2.5% same period last year), down 0.1 percentage points from Jan-May decrease. During January to June 2023, industrial and manufacturing investment improved 8.9% and 6.0% respectively. Moreover, the growth of oil and gas extraction and chemical investment exceeded the average level nationally.
5. Foreign trade declined, and export growth turned negative
During the first half in 2023, China’s overall foreign trade of petroleum and chemicals declined, so did the growth of export and import. Based on customs data, the sum of imports and exports in all industries were down 7.6% to US$476.36 billion, accounting for 16.3% domestically. Among them, total exports declined 5.6% to US$162.06 billion, while imports fell 8.7% to US$314.30 billion, resulting in a trade imbalance of US$152.23 billion, down 11.7%.
Meanwhile, the exports of basic chemical materials declined by 17.7% to US$50.96 billion, synthetic material by 15.0% to US$17.97 billion, and the exports of rubber products by 2.9% to US$28.29 billion. Moreover, the exports of oil products surged 71.9% to 20 471 000 tons in the first half with the value rocketing 54.1% to US$17.00 billion. And fertilizer exports were up 36.1% to 12 688 000 tons with the value increasing 3.5% to US$4.47 billion.
Domestic crude oil imports grew 11.8% to 282 million tons, with import dependence of 72.8% and growth of 1.8% year-on-year. And natural gas imports expanded 6.0% to 56 803 000 tons, with a 39.7% reliance on foreign energy and a 0.1% growth year-on-year.
During the first half in 2023, profits in petrochemical industry slumped owing to higher cardinality, crude oil and chemical prices falling back.
According to statistics, overall industrial earnings fell 41.3% to RMB431.09 billion, occupying 12.7% domestically. The cost is RMB83.5 for RMB100 of operation income, increasing RMB3.2 year-on-year and roughly equivalent to previous 5 months. And enterprise losses surged 66.6% to RMB126.33 billion, with 30% of enterprises reporting deficit, up 6.4 percentage points year-on-year and down 0.2 percentage points than previous 5 months. Total assets rose 3.7% to RMB17.08 trillion. And the asset-liability ratio was 55.55%, an increase of 0.3 percentage points year-on-year and 0.2 percentage points over the previous five months.
Profitability has declined. In the first half, the operation profitability was 5.7%, a 3.6 percentage points decrease year-on-year, almost the same as previous five months and 0.3 percentage points higher than national scale industry. The gross profit margin fell 3.2% year-on-year to 16.5%, essentially unchanged from the previous five months.
1. Extraction profits of oil and natural gas declined
The drop in profit extended slightly. As of June 2023, 482 enterprises above state designated scale were engaged in oil and gas extraction, with a total profit down 12.6% to RMB190.69 billion, a year-on-year decrease of 139.3%, and an increase of 4.0 percentage points over the previous five months.
Operation costs increased as profitability declined. The operation cost of the oil and gas extraction was up 3.5% to RMB389.08 billion in the first half of this year. The cost for per RMB100 of operation income was RMB57.64, an increase of RMB5.37 year-on-year and RMB0.31 over the previous five months. Meanwhile, 44% of oil and gas extraction industry saw deficit, with an increase of 2.8 percentage points year-on-year and 3.6 percentage points over the previous five months. Enterprise losses climbed 2.6% to RMB4.38 billion. Total assets stepped up 6.0% to RMB2.86 trillion. The asset-liability was up 1.3 percentage points year-on-year to 48.6%, a 0.9 percentage points gain over the previous 5 months. Notes and accounts receivable obtained 3.0% to RMB114.11 billion and the capital of finished products was down 11.8% to RMB10.96 billion. The data also revealed that in the first half of 2023, the expenses of the oil and gas extraction fell by 11.2% financially, while that of the management increased 5.7%.
2. The profits of chemical industry fell sharply
The prices of basic chemical raw materials were down in the first half of 2023. Earnings from fertilizer manufacturing declined as a result of falling prices of raw materials and demand, while profits in rubber goods further rose.
The decline in profit narrowed, and most sub-sectors saw profits falling. 26 578 enterprises in chemical industry were over designated size as of June 2023, with total profits slumping 51.1% to RMB205.08 billion, a year-on-year decline expanding to 60.1 percentage points and 0.5 percentage points lower than preceding 5 months. The manufacturing profits of chemical raw materials tumbled 67.7%, special chemicals production by 36.3%, fertilizer by 53.0%, pesticide by 59.0%, synthetic materials by 43.9%, coating (color) manufacturing by 19.9%. While chemical mining and selection increased 27.6%, rubber products by 83.1%. And the losses of coal chemical products were RMB3.61 billion.
Profit and gross margins slowly recovered. In the first half of 2023, chemical operation cost reduced 3.2% to RMB3.75 trillion. The cost per RMB100 of operation income was RMB87.63, RMB4.1 higher than the last year, flat with the previous five months. During this period, 29.5% of chemical enterprises, up 7.1 percentage points year-on-year and down 0.2 percentage points from the previous five months, witnessed the losses. And enterprise losses surged 70.4% to RMB94.52 billion, with total assets up 4.1% to RMB10.65 trillion. The asset-liability was down 0.6 percentage points year-on-year to 54.2%, almost equal to the previous five months. And during the first half of 2023, the notes and accounts receivable in chemical industry were up 0.7% to RMB1.06 trillion. The capital of finished products dropped 0.3% to RMB458.82 billion, and finance and management expenses decreased 7.1% and 1.2% respectively.
In the first half, the profitability in chemical industry dropped 4.3 percentage points year-on-year to 4.8%, basically equal to previous 5 months. And the gross margin reduced 4.1 percentage points year-on-year to 12.4%, roughly flat with preceding 5 months. And stock days of finished products were up 1.7 days year-on-year to 22.3 days, 0.5 days lower than previous 5 months. The average payback period of accounts receivable was up 3.4 days to 42.4 days, 0.6 days down than previous 5 months.
Main market outlook
Since 2023, the prices of oil and major chemicals have fluctuated due to external environment. And the upstream factory price of oil and gas extraction plummeted, making the prices of chemical products in downstream further drop. The price index of National Bureau of Statistics showed: the factory prices of oil and gas extraction shrank by 25.6% year-on-year and by 1.6% month-on-month in June 2023. Additionally, the factory prices of chemical raw materials and chemicals reduced 14.9% year-on-year, and 2.6% month-on-month.
In the first half, the factory prices of oil and gas extraction fell 13.5% year-on-year, while that of chemical raw materials and chemicals fell 9.4% year-on-year.
1. International crude oil
In June, the average price of crude oil for WTI (Platts, the same below) reduced 1.9% month-on-month to US$70.3/barrel, down 38.7% year-on-year, Brent was down 1.2% month-on-month to US$74.7/barrel, dropping 39.6% year-on-year, and Dubai increased 4.4% month-on-month to US$75.0/barrel, down 33.8% year-on-year, and Shengli shrank 0.6% month-on-month to US$74.8/barrel, down 37.4% year-on-year.
And during the first half, the average price of crude oil for WTI declined by 26.2% to US$75.0/barrel, Brent by 24.8% to US$80.9/barrel, Dubai by 22.9% to US$78.5/barrel, and Shengli by 24.8% to US$79.5%/barrel.
Regarding future prices, the average delivery price of light crude oil in July at the New York Mercantile Exchange dropped by 0.4% to US$70.3/barrel, London Brent by 0.3% to US$74.8/barrel, and Shanghai International Energy Exchange Center by 0.3% to RMB525.8/barrel.
2. The market of basic chemical raw materials
In the first half, the crude oil slipped back to US$74.8/barrel because of intensified financial risks and economic recession. Despite tardy demand recovery at home and abroad, destocking saw much stress and chemical products prices dived. Market monitoring showed that in June, 44 out of among 48 types of chemical raw materials saw market average prices declining year-on-year, making up 91.7% of all types. And 39 types that decreased month-on-month accounted for 81.3% totally. Out of the 72 key organic chemical raw materials, 68 types or 94.4% saw a decline in average market price year-on-year, and 66 types or 91.7% experienced monthly decline.
Since 2023, the prices of basic chemical raw materials have tumbled as a consequence of demand at home and abroad, and international oil prices. Based on current market, the supply of basic chemical raw materials market will be stable in 2023, and annual crude oil price is likely to stay between US$80 and 90/barrel depending on finance, supply, market and geopolitics. The prices of some basic products have remained stable due to the cost, and the downstream benefited from demand recovery, but the product prices will hard to rise.
3. Synthetic material market
Domestic prices of synthetic materials dropped over the first half of 2023. Since mid-June, international crude oil prices have been decreasing against economic recession and strict bank-loan rules. And low cost caused the prices of synthetic materials to drop. The downstream demand recovery took time, letting the sales of three synthetic materials slow down. One kind of materials among 69 kinds rose in average market price year-on-year, accounting for 1.4% totally.
Meanwhile, there was little downstream demand for synthetic material. And high oil prices increased the cost, making price transmission harder. As a result of aforesaid pressure, the profits of synthetic material manufacturing declined. And, in the second quarter of 2023, domestic economy, demand and market outlook witnessed a turnaround, which stabilized market prices. The prices of synthetic material will fluctuate, with the prices of major products slowing down and bottoming out.
4. Fertilizer market
Seen from the data in the first half of 2023, the prices of phosphate, potash, synthetic fertilizers were high even if they had fallen before, and export prices were less than import prices. A price negotiation of potash fertilizer import was completed in June, with prices expected to be lower than in 2022.
Since June, spring plowing and supply assurance have mostly ended, so fertilizer output growth narrowed. And the prices of potash and nitrogen fertilizers fell slightly, but remained stable overall. And demand off-season started in June, and therefore, fertilizer prices further declined.
The analysis of Industry operation
1. Energy prices rebounded, but crude oil prices became reasonable
International energy still faces tight supply. And the prices of international crude oil and oil products are getting higher with dropping stocking, and a reasonable price needs to be fixed, which will set a cost base for petrochemical products.
2. El Nino is a high probability event in the second half, look out short supply caused by abnormal climate
El Nino, whose forecast was released by the International Meteorological Organization and the National and Atmospheric Administration of the United States, in the second half is a high likelihood event, which is accompanied by weather anomalies that might reduce agricultural products supply and energy for some varieties in some regions.
3. Favorable policies were issued, making market outlook promising
In July, China released various favorable policies which have positive influence on several industries. 13 departments including the Ministry of Commerce issued the Three-Year Action Plan for Comprehensively Promoting a Quarter-hour Convenient City Life (2023-2025), the Ministry of Commerce issued the Notice of 13 Departments including the Ministry of Commerce on Several Measures to Promote Household Consumption, and the CPC Central Committee and the State Council issued the Opinions of the CPC Central Committee and the State Council on Promoting the Development and Growth of the Private Economy. On July 24, the Political Bureau of the CPC Central Committee held a meeting to analyze current economy and laid the path of the second half, including carrying out economic macro-control and counter-cyclical market management, domestic demand improvement, private investment promotion, real estate market optimization, and urban villages transformation. Moreover, the topics related to home-buying were discussed at the press conference of SCIO on July 14 and on the forum of Ministry of Housing and Urban and Rural Development on July 27, including the housing loan released by bank, mortgage rate of first homebuyers, down payment ratio, taxes and fees cutting of improved housing. And the meeting also advocated mortgage on second homes to be treated in the same way as a first mortgage, as long as the buyer has paid off the first loan. The topics above all got positive guidance. Petrochemical industry owns extensive downstream applications, including basic necessities of life. And several crucial policies, regarding macro-economy, well-being, property, consumption and investment, not only make the market outlook promising, but boost the petrochemical prosperity.