Chemical industry a new round of supply and demand imbalance

New production capacity continues to be released, but the overall demand is less than expected, and the domestic chemical industry is facing a new round of supply-demand imbalance challenges.

According to the latest data from the petrochemical industry, in the first quarter of this year, the overall price of domestic chemical products fell by 12%. How will the chemical industry perform in Q2? At the 2023 China Chemical Industry (Derivatives) Conference co-sponsored by Dalian Commodity Exchange (hereinafter referred to as "DCCI") and China Petroleum and Chemical Industry Federation on April 7, most participants expressed a bit of pressure on the current pattern of weak external demand, unstable domestic demand and supply expansion.

Under the risk of high raw materials and inventory, chemical enterprises are enthusiastic about participating in the futures market to avoid risks, and the delivery volume of chemical futures in the past year reached a record high of 1.21 million tons. The OTC business turnover of the chemical sector was nearly 33 billion yuan, an increase of 57%. The average daily position of industrial enterprises is 1.2 million lots, an increase of 41% year-on-year.

In response to a new round of industry changes in the imbalance between supply and demand, the Petrochemical Industry Association called for accelerating the listing of energy futures varieties and strengthening the promotion and application of listed futures varieties and services. The University of Commerce is also accelerating the listing of options such as styrene, accelerating the layout of new varieties along the chemical industry chain, and actively providing enterprises with a more systematic and comprehensive phase-in combination program.

The chemical industry is facing a new round of supply-demand imbalance challenges

With the high international crude oil prices, the upstream and downstream benefit differentiation has increased significantly, and the oil and gas exploitation benefit has increased significantly, but the downstream chemical industry profits have declined sharply, and the current domestic chemical industry has continued to release new capacity but the overall demand is less than expected challenges, which has become the common feeling of most participants at the 2023 China Chemical Industry (derivatives) conference.

According to data from the China Petroleum and Chemical Industry Federation, China's refining capacity will reach 920 million tons and ethylene production capacity will reach 46.75 million tons/year in 2022, ranking first in the world for the first time. The relevant aspects of the industry said that it is necessary to be vigilant about the signs of chemical overcapacity, strengthen the monitoring of the expansion of hot chemical production capacity, and avoid a rush of blind investment; Further standardize the market order, crack down on non-compliant production capacity to disrupt the market, and promote the normalization of the refined oil market.

"This year, the apparent consumption of polyolefin in the chemical refining industry increased by 5.0%, while the domestic production capacity increased by 12.2%, and the imbalance between supply and demand will lead to increased competition and insufficient plant operation rate." Li Suoshan, vice president of Sinopec Chemical Sales Company, is expected. At present, the downstream demand recovery speed of the domestic chemical market is less than expected, and the contraction of overseas demand has increased, which has become an important reason for the lack of demand in the industry.

According to Zhuo Chuang information data, the average domestic chemical price index in the first quarter of this year was 1350.3, down 12% from the same period last year, under the impact of the contradiction between supply and demand, the overall decline in the chemical market is more obvious. Some chemical enterprises are facing survival pressure, high raw material costs, backward production capacity, and equipment with reduced competitiveness, or regular phased parking and closure.

"As far as the polyolefin market is concerned, the pattern of weak external demand, unstable domestic demand and supply expansion this year makes the market still facing greater pressure in the second quarter." In the future, we need to pay close attention to the maintenance and production reduction actions on the supply side." Guotai Junan futures chemical industry analyst Zhang Chi believes that under the pressure of low profits and strong cost end of the chemical industry, the second half of the year or face the possibility of further rise in the cost end, the market's choice may be to either reduce production or bear greater losses.

"For chemical production enterprises and trading enterprises are facing two major inventory risks: one is the inventory risk of raw materials, and the other is the inventory risk of products." The solution to avoid the two big inventory risk operations is primarily hedging on futures." Zhejiang Hengyi international trade company deputy general manager Rui said.

Promote the integration of industry and finance to accelerate the listing of styrene options

In the market supply and demand imbalance pattern, the enthusiasm of enterprises to participate in the chemical market is high. In 2022, the delivery volume of chemical futures reached a record high of 1.21 million tons, and the enthusiasm of enterprises to participate in delivery was greatly improved. At the same time, the OTC business transactions of the chemical sector are active: in 2022, the OTC turnover is nearly 33 billion yuan, an increase of 57%, which strongly supports chemical enterprises to use the combination of business management risks and stable supply and marketing; In 2022, the average daily position of industrial enterprises participating in the chemical futures market of Dshang will be 1.2 million lots, an increase of 41% year-on-year.

It is worth noting that in the period of increased volatility of the overseas energy sector in 2022, the chemical sector of Dshang University maintains a stable and rational operation, the price correlation of various varieties is above 0.9, and the hedging efficiency is above 96%, which plays a prominent role in providing stable prices and enhancing the toughness of the industrial chain.

At present, Dacong's petrochemical industry chain has 6 chemical intermediate product futures and 4 options represented by polyvinyl chloride, polypropylene, ethylene glycol, styrene, liquefied petroleum gas and other varieties. China's chemical futures have developed into the most active and characteristic chemical derivatives market in the world, and Dashang has long maintained the position of the world's largest plastic futures market.

In response to the current predicament of enterprises, Fan Min, deputy director of the information and Marketing Department of the China Petroleum and Chemical Industry Federation, called for the integration of production and finance to be promoted as soon as possible. Under uncertain market conditions, Fan Min suggested speeding up the listing of energy futures varieties, strengthening the promotion and application of listed futures varieties and services, and helping enterprises to improve risk control and cost control capabilities. At the same time, in view of the increase in the average collection period of accounts receivable of chemical enterprises, Fan Min suggested that we continue to track the growth trend of corporate bills and accounts receivable, improve financial services, take measures to solve the financing difficulties and expensive financing of small and medium-sized enterprises in a timely manner, and avoid the partial risk spillover caused by the rupture of the capital chain.

"In the next step, DCOM will accelerate the listing of options such as styrene and accelerate the layout of new varieties along the chemical industry chain." Ran Hua, secretary of the Party Committee and chairman of Da Shang Exchange, said that in the future, it will explore the launch of monthly average price futures for chemical varieties, and actively build a high-quality product system that meets the needs of industrial diversification; Continue to enhance the compatibility of chemical variety contract design and delivery layout with industrial demand, promote the optimization of delivery basic system, and further facilitate enterprises to participate in trading delivery.

In terms of OTC chemical business, DCE will study and launch services such as futures and spot position conversion, time-spot linkage pricing, explore the construction of OTC trading zones with leading enterprises in the petrochemical industry, deepen the construction of bulk commodity receipt registration centers, and provide enterprises with a more systematic and comprehensive time-present combination plan.