Chemicals "new chess game" has opened

Chemicals 2015 Review and 2016 Outlook

Behind the "terror" is the erosion of profit

In 2015, for the bulk commodities, how can one be miserable? Black, colored clamoring, the market has dropped to "cabbage price." In the tide of commodity slump, chemicals are hard to keep up with. In addition to PTA is still "hard", polyolefins "brothers" and methanol have experienced a nearly "waist" "**."

** Daily reporter statistics found that in chemical products, PTA prices fell by 24% from the highest point in the year, and the declines of the other three varieties were all above 30%. Taking two varieties with larger declines as an example, the annual high point of polypropylene is RMB 9,027/ton, the low point is RMB 5,361/ton, and the cumulative decrease is 41%, and the price of methanol dropped from RMB 2,654/ton during the year to RMB 1,590. / Ton, the cumulative decline of 40.1%.

Recalling the trend of 2015, Hairong Investment Analyst Gao Jianming believes that chemical products basically reached the high point of the year at the end of April, and entered the falling channel at the beginning of May. Among them, the most spectacular are the "alkenes" brothers and methanol, and their "treasure" is reflected in the changes in the market.

PP, as the twin brother of LLDPE, under the pressure of loose supply, the “squeeze profit market” performance in the fourth quarter of 2015 was thoroughly demonstrated. "Removing the oversupply of the self, and the dropping of propylene monomer to 3,800 yuan / ton resulting in cost collapse, and the large price gap between pellets and powder, good profitability of powder material, and large price cuts, the price of PP pellets cannot stand firm. There is little power to pull downstream demand, Gao Jianming said.

Compared with polyolefins, the price of methanol has fallen significantly behind. It can be said that the rise of methanol-to-olefin processes has brought methanol and olefins together. “Most of the equipment is outsourced methanol, which on the one hand increases the demand for methanol and on the other hand increases the supply of olefins. Methanol and olefins have a significant banding effect, but whether it was the collapse at the end of 2014, it started in July 2015. When it fell, the drop in methanol prices lags behind that of olefins.” said Yana Li, an analyst with the Central Plains.

Talking about the general decline in chemicals in 2015, people in the industry believe that such a trend is actually reasonable. "Coal has started to decline since 2012 and has fallen by more than 60%. Crude oil prices have started to fall since the second half of 2014, and the decline has also exceeded 60%." Cai Yan believes that as the source of coal and crude oil, its price drop directly reduces the downstream chemical industry. The cost of the product, the downstream product is taken for granted. However, in the process of falling prices, the specific performance of each chemical product is different.

After three consecutive years of decline in 2011-2014, PTA's profits have been squeezed out. In 2015, the PTA fell, and prices fluctuate around costs. The drop in olefins was due to the huge profit margin left after the heavy oil market fell in the second half of 2014.

It is understood that in the first half of 2015, the average profit of olefins on the naphtha route was 2,500 yuan/ton, and the decline in prices in the second half of 2015 was only an indication of the high profit margin of olefins during the expansion of production capacity. At present, the average profit of olefin production is 1,500 yuan/ton.

“The price difference structure of olefins is far lower, and it is in a high discounted state in the distant future, which means that funds are still shorting olefin profits when capacity expansion occurs,” said Cai Yan.

In Dec. 2015, Shenhua’s 600,000-ton MTO plant was put into production. In 2016, China Coal Mengda 600,000 tons, Jiangsu Shenghong 1.2 million tons, Changzhou Fude 330,000 tons, Beittel 300,000 tons, Salt Lake Group 1 million tons, Zhongtianhechuang 1.37 million tons and Jiutai Energy's 0.6 million tons olefin production capacity will be launched. "Capacity expansion is generally accompanied by a contraction in profits. In the mid to late period of capacity expansion, prices will fall back to near the cost. It seems that there is room for further decline in the prices of olefins in the distant future," said an industry source.

“In the context of weak demand, the high-margin industry has more short-selling opportunities. For example, PP industry, the current profits of oil-produced PP at 500 yuan / ton, has been compressed more than 1,000 yuan / ton, but there are still squeezed later Room." Gao Jianming said.

What is the culprit of the disturbance chess game?

“This round of chemical price falls is not accidental, but the decline rate exceeds market expectations. In 2015, the chemical game was not good enough to move and it was a bit tricky to operate.” An industry veteran who specializes in chemicals The reporter frankly stated that the culprit of the market in the second half of 2015 was market expectations.

The global financial turmoil caused by the Chinese stock market disaster has triggered market concerns about the economic crisis, which has triggered large-scale destocking of all links in the physical industry. In this state, the decline in commodities is inevitable.

As the market discussed, the rapid decline in the price of chemicals stems from "shorting profits." It is understood that the sharp decline in international oil prices has led to a substantial increase in the profits of chemical products, especially polyolefin products.

“In an environment where commodities are almost completely lost, polyolefin products can be described as huge profits, so that commodity investors can not understand, even more intolerable.” The industry insiders said that as long as a commodity has profits, there will be money Do not hesitate to go short, polyolefins and related species to some extent is the "sacrifices" of this idea.

In fact, for chemical products, there are many factors affecting prices, the most important being supply and demand and costs. According to Pan Zeng-en, an analyst at Xingye, the price of chemicals is determined by supply and demand rather than cost, but sometimes the cost will adversely affect supply and demand. For example, in 2015, PTA entered the stage of oversupply, prices continued to fall, profits in the upstream, middle, and downstream parts of the industry chain contracted sharply, and even suffered losses. In this situation, the industry itself enters the production phase-out cycle, and some of its old production capacity is shut down, thereby affecting the equilibrium price.

In terms of costs, US crude oil in 2015 fell from US$62.58/bbl to US$34.53/bbl, a drop of 44.8%. The impact of cost collapse on chemical products can be imagined. However, in fact, the current chemical raw materials are decentralized.

"The large-scale production of coal-to-olefin plants makes crude oil no longer the only cost factor to be considered. The operation of PDH plants also has an additional impact on polypropylene; natural gas and coal prices determine the cost of methanol, and the impact of oil prices. Relatively weak; oil prices are still the key factor in determining the cost of PTA." Pan Zeng-en analyzed.

In 2015, there was a saying circulating in the market that it was “chemical trading, but it was not careful to lose everything”. This is not exaggerating the facts. In 2015, both small-scale and industrial customers experienced the “battle of the wild”.

People in the industry believe that the "disastrous wash" is related to the market's improper judgment of supply and demand. Especially the demand, if you look wrong, the consequences can be disastrous.

"On the supply and demand indicators, we need to pay attention to the new production capacity production schedule, the original production capacity and the seasonal factors of demand." Pan Zeng-en said.

This reporter learned that some time ago, chemicals were basically destocked. The plunge in the end of June 2015 caused the cash flow of the PTA plant to deteriorate. In order to deal with the crisis, the PTA plant led by Yat-Sen developed a stopover maintenance plan and implemented it in late July. The PTA market went through 4 months of destocking. In the near future, due to the recovery of supply and the weakening of demand, the supply and demand scissors were formed and PTA prices weakened again.

For polyolefins, after the National Day in 2015, it was in the destocking phase, but the price did not increase. The main reason was that the profit of the powder was good and the price cut was large, which in turn dragged down the pellets. "Because of the substitution of powder and the weak downstream demand, PP's drop after October 2015 was greater than LLDPE's, and the spread between the two increased from RMB 1,000/ton to RMB 2,000/ton," said Cai Yan.

As for the drop in methanol prices, the main reason was that the demand growth was not as expected. “The number of methanol-to-olefin plants planned to be put into production in 2015 is relatively large, but due to various reasons, there are also a lot of devices for parking or delayed production, and the expected growth of new types of demand continues to fall. At the same time, the traditional downstream demand is not satisfactory, and the real estate industry is becoming increasingly ineffective. The business climate has gradually reduced the demand for formaldehyde, and DME has also been devastated by the sudden drop in oil prices.” Gao Jianming believes that the above factors, coupled with the fact that methanol supply has not declined, are not without reason.

Join together and take a good "underscore chess"

In 2015, chemical operations were rampant. In the new chess game in 2016, careful layout is particularly important.

The industry generally believes that in 2016, it is necessary to focus on changes in the supply and demand structure of chemical products and changes in the profit structure of the industrial chain.

In the polyolefin market, in 2016, 2 million tons of new PE equipment is expected to be put into operation, and 2.8 million tons of new PP equipment will be put into operation. Polyolefin supply will go into surplus.

“In the context of strong demand and weak demand, the polyolefin industry chain will continue to profit. According to the current crude oil and coal price conversion, PE production profit is still substantial, and the price of PE will oscillate downward in the later period. For PP, its overall The trend is similar to that of PE, but at the current price, the PDH plant has suffered serious losses, and the profits of coal heads and oil heads have also been squeezed. If the plant stops production, prices may rebound for a short time,” Pan Zengen said.

Similarly, in Cai Yali's view, in the process of capacity expansion, olefin profits will continue to be squeezed, and the price center of gravity will be further reduced. “Supply of propylene is already oversupply. MTP plants and PDH plants for domestically produced propylene are at a loss. Many small MTP plants in Shandong, such as Shouguang Luqing, Ruichang Chemical and Lushenfa, have long-term parking, and in PDH plants, China, satellites, and Sanyuan also have temporary stops. In 2016, the operation of specialized propylene plants weakened the pressure on propylene prices.The expansion of foreign polyolefins was dominated by polyethylene. In 2016, nearly 2 million tons of capacity was put into production in North America. “Jiaili believes that in the future, the downward shift in polyolefin prices will be mainly due to the decline in polyethylene, and the spread between PE and PP will narrow. The 2016 LLDPE price range is expected to be between 6000-8500 yuan/ton, and the PP price range is between 5000 and 7,000 yuan. /Ton.

In the PTA market, due to the thoroughness of the industrial chain, and in 2015, the industry has entered a passive capacity-removing state. Currently, approximately 20% of production capacity is currently closed (excluding 4.5 million tons of equipment currently suspended by Xianglu Petrochemical). The chain is basically in a balance between supply and demand. Under this pattern, the PTA price trend in 2016 will be dominated by profits. Specifically, the price difference between PX and naphtha and the dynamic processing fee of PTA will become an important indicator of the market trend. It is widely expected by the industry that PTA will oscillate in the range of RMB 4000-5500/ton during 2016.

As for the methanol market, the current manufacturers have a meagre profit, but they will not lose money. The current low prices will not stimulate the restart of natural gas plants shutting down. The methanol-to-olefins plant in the northwest region is in a profitable state, while the equipment in East China is at the edge of losses, and the overall supply and demand of the market is weakly balanced.

"However, due to the suppression of olefins, the methanol market in 2016 is difficult to perform brilliantly. The price range is expected to be 1,500-2,000 yuan / ton," said industry sources.

It is worth mentioning that, in addition to supply and demand, in 2016, crude oil is still the vane of the chemical market.

“The slow recovery of the global economy in 2016 will bring about an increase in demand of one million barrels per day. The growth of demand is slowly consuming excess supply, but the pattern of oversupply is hard to change.” analyst Wang Guangqian of Dongwu University said, Under the background of the Fed’s rate hike, international oil prices will be low in the middle of 2016, and then, following the boost in demand season and the reduction of production by high-cost crude oil producers or OPEC production, bottoming-out rebound is expected. WTI crude oil is expected to have a fluctuation range of 30- 55 US dollars / barrel, Brent crude trading range 35-60 US dollars / barrel.

In addition, industry sources have warned that when taking a good lead, some risk factors need to be focused. Among them, the most important is the orientation change of the national macro-policy, which will influence the price through the expectation of the demand side. The trend of the dollar is also a focus of attention. In 2016, the pace of Fed rate hike will determine the trend of the US dollar. As a whole, the US dollar is in an appreciation cycle, which has a negative impact on crude oil. In addition, we must pay attention to the original device maintenance plan, the impact of the deviation between the actual commissioning schedule and the expected progress of the new device on the supply side.