Domestic energy market or sharp differentiation

Source: China Chemical Industry News Time: 2020-02-21

Affected by the sudden outbreak of new pneumonia in China, a country that consumes large amounts of crude oil, international oil prices have plummeted recently; while domestic coal mine production and transportation have been hindered, coal resources have been further strained and coal price increases have expanded. The ups and downs indicate that the existing domestic petrochemical and coal chemical industry competition will be broken, and the domestic energy and chemical markets may undergo differentiation and reconstruction.

The world economy continues to slump, and China's epidemic has exacerbated concerns about the decline in crude oil consumption. Since the US-Iraq confrontation in January and the WTI oil price quickly surged to the front line of US$65/barrel, international oil prices have fallen by nearly 25% in a month. Even after OPEC+ issued a clear production cut signal a few days ago, oil prices are still declining. Recently, the IEA has reduced its oil demand in the first quarter of 2020, and oil consumption is expected to drop for the first time in 10 years. On the evening of February 18th, WTI crude oil futures and Brent crude oil futures fell by more than 2%.

With the decline in international crude oil prices, the price system of the petrochemical industry at home and abroad may be significantly restructured this year. While lower costs will impact and test petrochemical enterprise inventories and market risk prevention and control systems in the short term, from a longer period of time, it will be Significantly enhance the competitiveness of the petrochemical industry chain, and split into more market share from the market competition with a price.

The uniqueness of China's chemical market lies in the \"double-headed\" distribution of oil head chemical and coal head chemical. While the international oil price plummeted, we saw a different situation in the domestic coal market. Affected by the epidemic situation, domestic coal mine resumption and operation rates have been impacted to varying degrees, the supply of production areas is severely restricted, and resource tensions have further increased. The rigid demand for thermal coal and other strong heating season, the imbalance between supply and demand will inevitably push up coal prices. Recently, domestic coal prices have continued to rise slightly. Data released by the China Coal Transportation and Marketing Association show that China Shenhua has raised the benchmark coal unit price of 5500 kcal in February by 7 yuan/ton to 562 yuan/ton; the unit price of 5000 kcal coal has risen. 8 yuan/ton, to 502 yuan/ton. Market participants predict that coal prices will remain high and firm until domestic coal supply tensions ease in the coming period.

The rising coal price is naturally good for domestic coal mining companies, but for coal chemical industry, it may be fueled by fire. The reason why domestic coal chemical industry can develop and become a new industry force that cannot be ignored more and more is largely due to the independent raw material advantages and price advantages of coal chemical industry. Relying on the construction of pit-type factories nearby, coal-to-olefins, coal-to-ethylene glycol, coal-to-methanol, coal-to-synthetic ammonia and other coal chemical routes can achieve greater competitiveness than domestic petrochemical routes of the same type of imported oil and gas raw materials. For example, for the production of polyolefins, the production cost of domestic coal head factories is about 1,000 yuan/ton lower than that of coastal refining and chemical companies, and the production cost of ethylene glycol is also about 500 yuan/ton. This is the most important basic factor that supports the breakthrough and growth of China's coal chemical industry in the gap between domestic and foreign markets.

However, under the new situation of falling international oil prices and rising domestic coal prices, the cost advantage of coal chemical industry may collapse. It can be predicted that at least in the first half of this year, the overall domestic energy and chemical market demand may shrink, and within the overall shrinking market cake, petrochemicals will be divided into a larger piece by virtue of cost advantages. Or bring out the crowding out and substitution effect that cannot be underestimated.

It is not easy for China's coal chemical industry to develop from the cracks to the present. This time, in the face of a sudden epidemic, can the management plan ahead, speed up the resumption of coal mine production, give priority to guaranteeing the transportation of coal supplies, flexibly expand overseas coal imports, and stabilize the domestic imbalanced coal supply and demand market. Whether you can spend this extraordinary year steadily may have vital significance in life and death.