After the “magnificent” first and third quarters, the growth rate of chemical products exceeded expectations. What is the core logic of the surge? Can the strength continue in the fourth quarter?
The chemical industry sector has been on an overall upward trend this year, with the gains in the first and third quarters being the most “spectacular”. Taking LLDPE, PP, and PVC as examples, the main contract increases in the third quarter were more than 16%, 16%, and 40% respectively. Judging from the trend characteristics, the two rounds of increases in the first quarter and the third quarter both showed large increases and rapid increases. Especially during this wave of rise in September, the cumulative growth rate of many varieties such as PP and PVC in less than one month has exceeded the growth rate in the first three quarters, exceeding market expectations and far exceeding the same period in previous years.
Driven by favorable conditions on the cost side and supply side, the growth of chemical products in the first three quarters exceeded expectations
According to statistics from the chemical industry team of SDIC Anxin Futures, in the Wenhua Index, the chemical industry sector has increased by nearly 40% year-to-date. Among them, the higher the correlation between coal or natural gas varieties, the greater the increase, and the crude oil-related varieties. The increase was slightly smaller.
Among all chemicals, soda ash has the strongest performance. The price of soda ash has been rising this year, from 1,600 yuan/ton at the beginning of the year to more than 3,000 yuan/ton, constantly breaking through historical highs. The current price is about to exceed the 3,500 yuan/ton mark, more than doubling, with an increase of 119%. In the polyolefin sector, polyvinyl chloride has increased by about 63%, as dual energy consumption controls have a greater impact on it, but the main contracts of polyethylene and polypropylene have only increased by about 20%. Among the coal chemical industry, methanol and urea increased by about 46% and 59% respectively. Among the polyester sectors, MEG, which is more related to coal, has the highest increase, with an increase of 37% year-to-date; followed by PTA, with an increase of about 33%; short fiber is the weakest, with only about 15%.
“The surge in chemical products this year is mainly driven by favorable conditions on the cost side and supply side. The main reason for the rise in the first quarter is that the United States was hit by a cold wave during the Spring Festival, which caused many refineries in the U.S. Gulf region to The suspension of production was announced due to force majeure, and supply in overseas markets dropped sharply. In the context of domestic chemical supply partially relying on imports and the recovery of global demand after the epidemic eased, it triggered market concerns about the imbalance between supply and demand of chemical products, thus driving prices upward. In addition, in March Inner Mongolia has tightened its dual energy consumption control policy and has significantly increased power and production restrictions for industry, which has also led to a surge in related coal chemical sectors.” said Zhang Jun, senior analyst of the olefins industry chain of Wuchan Zhongda Futures.
The reporter learned that the rise in chemical products in the third quarter was more affected by rising coal costs and the upgrade of dual domestic energy consumption controls. Affected by import restrictions and electricity demand, domestic thermal coal supply and demand continued to be tight in the second half of the year, inventories remained low, and market prices continued to rise. The cumulative increase in thermal coal futures prices in the third quarter was more than 70%, which also reflects the market’s expectations for future supply. Insufficient concerns.
“Crude oil, coal and natural gas are all upstream raw materials for chemical products, which determine the cost of chemical products. Due to the global blockade last year, demand fell off a cliff, causing energy prices to plummet. Energy-related capital expenditures have decreased and output has declined. Entering 2021, as the epidemic is under control, economic activities have resumed, coupled with stimulus policies and dual-carbon policies, demand for traditional energy products and clean energy products has increased significantly, while supply recovery has been slow, leaving a gap between supply and demand. Inventories have continued to decline. Natural gas in Europe, crude oil in the United States, and coal inventories in China are all at historical lows for the same period. Although it is currently in the off-season for energy consumption, the decline in the northern hemisphere in mid-November has gradually entered the heating season, and energy consumption has strengthened seasonally. .” Ding Ding, president of the SDIC Essence Futures Research Institute, said that low inventories have triggered market concerns about the security of energy supply in the fourth quarter. The market is enthusiastic about stocking up and doing long, and prices continue to push up. Rising energy prices have pushed up the cost of short-process chemicals. The main raw materials for global methanol and urea are coal and natural gas, which are currently benefiting from strong raw material prices.
“Coal is not only used as an energy product, but also as the main raw material for many coal chemical products. With the surge in coal prices, PVC, methanol, ethylene glycol, PP, PE and other related coal The performance of chemical varieties is also very impressive. In addition, in August, the National Development and Reform Commission issued a notice on the “Barometer of Completion of Dual Energy Consumption Targets in Various Regions in the First Half of 2021″, pointing out that Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi In the first half of the year, the energy consumption intensity of nine provinces (autonomous regions) in Jiangsu rose instead of falling, which was a first-level warning and became the trigger for the sharp rise in prices in September.” Zhang Jun said.
With the increasing pressure to meet the annual energy consumption dual control standards, in the third quarter, Shaanxi, Ningxia, Qinghai and other major northwestern energy provinces have introduced specific measures to achieve dual energy consumption control, mainly in the form of dual energy consumption control. Measures such as power restrictions and production restrictions have led to a contraction in the supply of coal chemical raw materials such as calcium carbide, methanol, and blue charcoal, and some devices have been forced to shut down or operate at a reduced rate, resulting in a decline in market supply.
“From an industrial point of view, various raw materials have increased significantly this year, capturing most of the profits in the industry chain. The performance of mid-stream and downstream products varies due to different bargaining power, but the overall situation is The increase in raw material costs is passively transmitted to the downstream, and the product-end profits are meager or even in the red. When the impact of dual control on the supply side is greater than the demand, the product-end profits can be restored. For example, the recent increase in polyolefin product prices has led to a decrease in product-end profits. It’s getting better,” said Zhong Meiyan, energy chemical director of Everbright Futures.
The expectation of supply contraction is the dominant trend.The current market trend has largely reflected the expectations brought about by positive factors on the cost and supply side. The marginal impact of the positive factors in the fourth quarter may gradually weaken. As market expectations diverge, the process of market peaking in the fourth quarter may slow down. “Zhang Jun said that from a fundamental perspective, after experiencing supply contraction, price increase, and squeezed out demand in the third quarter, the supply and demand of most chemical products will enter a rebalancing stage in the fourth quarter, and the price trend may show a high oscillation pattern and market fluctuations. It will also weaken accordingly.
In Dingding’s view, the core factor affecting chemical prices in the fourth quarter is whether the current global energy shortage can be properly resolved. The current low energy The inventory status cannot be effectively replenished to a safe position during the off-season, and the tight situation cannot be improved. The current pattern may continue in winter, with energy products being the strongest, followed by short-process chemicals close to energy products, and finally downstream products affected by dual control. Chemicals.
“The variable factor in the fourth quarter is: climate. Under the expectation of a cold winter, energy prices may strengthen further. “Zhong Meiyan said that from a domestic perspective, paying attention to the matching of power during peak periods, energy and chemical prices are expected to continue to be strong in the fourth quarter. Investors face the risk of high and sharp price fluctuations, and the pace of transactions is more important.
“Overall, the upstream raw materials oil, natural gas and coal are still the main factors that determine the price focus of chemical products. “Ding Ding said that the fourth quarter is the peak demand season for coal and natural gas, and the market generally expects that this winter may be a “cold winter,” which further enhances the expectations for energy demand.
If there is a In the event of energy shortage, it is not ruled out that power restrictions will become more stringent and cover a wider area. The impact of power restrictions on each chemical chain will be different, with some biased towards upstream supply and some biased towards downstream demand.
“If energy supply continues to be in short supply in the fourth quarter, as raw material prices rise, the overall downstream chemical products are expected to maintain a strong pattern. However, due to the different degrees of impact, the relationship between the strengths and weaknesses of the varieties may be differentiated. The overall trend is still biased toward coal and natural gas. Chemicals based on crude oil are stronger, while chemicals favoring crude oil are relatively not that strong. “Ding Ding said.
It is worth noting that currently, during the National Day holiday in China, the market risk mainly lies in the risk linkage of the US stock market. The market is paying attention to the trend of US bonds and the US dollar. In addition, the market is also paying particular attention to the timetable for the Federal Reserve to tighten debt online.
“During the holidays, on the one hand, we must consider that the domestic downstream processing industry will generally have shutdown periods. At the current raw material prices Generally at a high level, with most companies losing money, will the downstream industry extend the shutdown period, leading to an unexpected accumulation of chemical inventories after the holidays? On the other hand, foreign countries are mainly concerned about whether the Fed’s statements on monetary policy will lead to rising expectations of shrinking the balance sheet and raising interest rates in advance, thus bringing systemic risks to the overall commodity market. “Ding Ding said that the population flow increased during the National Day holiday. While the epidemic still exists in some areas of the country, it is also worthy of attention whether the epidemic will spread again.
During the National Day, the market still needs Pay attention to the subsequent evolution of the dual energy consumption control policy. Taking the polyester market as an example, the uncertainty lies in the disturbance of the dual energy consumption control policy on the demand side of MEG and PTA.
“If the downstream If the production limit is large, MEG’s accumulated inventory is expected to increase. If the cost side is still strong by then, the probability of a sharp drop in MEG prices is unlikely; if the downstream production limit is small, MEG will still be difficult to accumulate. In addition, with the cost side boosting, MEG prices will You can continue to try more. “Xie Wen said that if the downstream operating rate continues to decline, under the influence of poor demand, PTA has accumulated inventory expectations, and forward PTA prices may be dragged down. The key to the trend of short fiber still depends on the degree of inventory reduction. If four The quarterly textile peak season has started, and short fiber prices may continue to be boosted.
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