Year 2021 kicked off a new cycle for China’s petrochemical industry, the 14th Five-Year Plan period (2021-2025). The industrial structure was further improved during the year, with driving factors such as safe production, green development as well as the control over both the quantity and intensity of energy consumption becoming the "invisible hand" of the market. On the other hand, the ongoing construction of large-scale refining & chemical plants in China, and the volatile international oil prices were resulting in a far-reaching change in the supply and demand balance, also posing new challenges to the market players.
Who will lead the prices?
The petrochemical prices kept rising in 2021 as global crude oil levels stay elevated. Notably, the prices surged in the first and the third quarters. This year saw the prices of most petrochemical products hit new highs of recent years. According to JLC chemical index, the highest point of the chemical industry was seen in the third quarter, as rapidly driven by the rising oil prices and the supportive policies such as the control over both the quantity and intensity of energy consumption as well as production restrictions, which, however, carried a foreshadowing of a broad price decline in the fourth quarter. The price nosedive in the fourth quarter was due to the regulatory tightening of the coal market, coupled with downstream producers’ heavier cost pressure imposed by rapidly increased feedstock levels. And then the market ended the year with a stabilized tone. In general, the petrochemical prices in 2021 were characterized by sharp rise and fall based on policy factors.
The tension between the rise of commodity prices led by high oil prices and the rapid ramp-up of chemical capacity may be further intensified in 2022, that is to say, year 2022 may see severe fluctuations in petrochemical prices.
Among the 119 varieties of commodities traced by JLC, 115 varieties saw an increase in their average prices in 2021, accounting for 96.64%; only 4 varieties saw a price decline. Whereas in 2020, 25 varieties saw a price rise while 94 varieties saw a fall. The chemical prices bottomed out on the back of a gradual recovery from the epidemic in 2020. In 2021, crude oil and coal prices skyrocketed as a result of tight energy supply, and hence chemical prices surged.
Table 1 shows top ten chemical products with the highest price rise in 2021. It can be seen that the structure of some industrial chains was relatively single -producers were relatively dominant in terms of the supply and demand, and chemical products less involved in the large-scale refining and chemical production projects outperformed in 2021.
Table 2 indicates top 4 products with the sharpest price decline.
Table 3 shows the price changes of key products traced in 2021 by JLC. As for the price trend of the most representative products in the whole chemical industry – toluene/xylene/benzene, ethylene/propylene/butadiene, plastic and rubber, the aromatic chain performed better, with the price hikes of toluene/xylene/benzene at or above 50%. In particular, benzene prices enjoyed a price rise of as high as 80%. The outperformance was highlighted by rising energy prices. In addition, new downstream units were started up consecutively, but the growth rate of benzene capacity was slower than that of downstream capacity, which gave a boost to the benzene market. The increased butadiene prices also drove up the prices of downstream styrene butadiene and butadiene rubber sharply. Methanol and urea prices rose by more than 40% because of coal prices and the control over both the quantity and intensity of energy consumption. Propylene, polyethylene and polypropylene prices gained below 20% amid the rapid expansion of domestic capacity.
Supply of upstream olefins and aromatics will increase in line with the massive release of large-scale refining and petrochemical projects in 2022. Thus, the prices of petrochemicals are expected to largely stay flat. At the same time, important policies, such as the implementation route and specific task arrangement of carbon emission reduction in the petrochemical industry, may affect the whole petrochemical industry and should be focused on.
Who will benefit?
Although the average price of main chemical products in 2021 was generally higher than that in 2020, the profit gains were not as high as expected due to the heavier cost pressure along the industrial chain. Among the 75 varieties traced by JLC, 67 varieties gained profits in 2021, accounting for 89.33%, and the other 8 varieties theoretically suffered losses, accounting for 10.66%. The proportion was almost consistent with that in 2020. To be specific, BPA and specialty plastic rubber such as POM, EVA, ethylene propylene rubber and NBR ranked among the best in terms of price increase and profit gains as driven by strong demand. They showed stellar performance throughout the year.Although prices rose during the year, traditional commodities such as styrene, PX, methanol and PTA were still in the reddue to the relatively sufficient supply and the sharp rise of upstream prices.
Table 4 shows top 10 profitable varieties in 2021.
Table 5 shows top 8 loss-making varieties in 2021.
Table 6 shows the profit changes of key products traced in 2021. The profits of the representative products aromatics and rubber increased sharply compared with in 2020. Despite price rises, the profits of propylene, polyethylene and propylene shrank because lofty oil and coal prices exerted cost pressure on the polyolefin industrial chain.
It can be seen that the industries with obvious capacity expansion have been under pressure to gain profits in recent years, especially the products in the middle of their industry chain. On one hand, the cost pressure continues to increase. On the other hand, the rapidly increased feedstock prices cannot be priced in amidst the epidemic. If producers are unable to find a way out in terms of technology and services, more and more commodities may lose ground in the future.
Which sectors will be the winner of capacity
The 13th Five-Year Plan specified that China's petrochemical industry should be scientific as well be safe and environment-protective. This idea will continue to be adopted in the development of the petrochemical industry. On one hand, the National Development and Reform Commission formulated the Petrochemical Industry Development Plan in 2014 and officially released it in 2015. The Plan clearly attached importance to the construction of seven petrochemical industry bases, including Dalian Changxing Island (Xizhong Island), Hebei Caofeidian District, Jiangsu Lianyungang, Shanghai Caojing, Zhejiang Ningbo, Guangdong Huizhou and Fujian Gulei. The core of the construction of these bases is the layout of large refining and chemical complexes. In addition, with the start-up of Hengli and Zhejiang Petrochemical, private producers have had a presence in the market. New coal chemical projects are consecutively being put into operation in northwest China because of the abundant coal resources. The construction of PDH projects along the southeast coast is also in full swing.
Among the 78 varieties traced by JLC, the production of 4 varieties decreased, that of 14 saw no change, while that of 60 increased in 2021. In 2020, the production of 7 varieties decreased, that of 16 varieties had no change, and that of 55 varieties increased.
Top 10 products with increased capacity in 2021 is shown in Table 7.
It can be found that the capacity of ethylene, propylene, xylene, PE, toluene and SM involved in large-scale refining and chemical projects increased significantly. The capacity of PTA, MEG, synthetic ammonia and urea also had a sharp increase.
In 2021, many new PTA units were put into operation and some laggard units were idled, which increased industrial concentration sharply and improved the integration of domestic PTA industry chain. The PTA capacity increased to 67.555 million tons, marking a year-on-year increase of 10.65%. With Yisheng, Hengli and Fuhaichuang taking up more than 49.22% of the existing capacity, the domestic PTA industry has been dominated by private producers instead of state-owned one, and the market has reversed from short supply to oversupply.
The expansion of polyester capacity triggered the consumption of MEG rapidly. Against the backdrop, China's dependence on imports of MEG reached more than 60% in the early stage, and MEG demand yet exceeded supply. In response, domestic producers began to speed up their production. In addition, coal-to-MEG, as a new process route, has been developing fast in recent years no matter in terms of cost saving or product quality, because of the widely distributed raw material in China and the upgrading coal-based technologies.
The start-up plans of some synthetic ammonia units will be postponed to 2022 as a result of some constraints such as production cost and environmental protection issues in 2021. During the 13th Five-Year Plan period, a large number of laggard units were driven out of the market, while demand for synthetic ammonia was stable-to-firmer because of the needs for nitrogen fertilizer and the needs for industrial-use synthetic ammonia, stimulating the upgrade of old units and the start-up of new efficient units.
In 2021, some new urea units were put into operation, and some have been postponed to 2022 from scheduled Q4. There were five plants online through 2021, with capacity of 3.42 milliont/a in total. New capacity will be released in the next two to three years in Inner Mongolia, Jiangsu, and Anhui. To sum up, the urea capacity will be stable-to-up in the coming three years, and the average daily urea production is expected to return to the level of 160 000-170 000 tons.
Top 4 products with reduced capacity in 2021 are shown in Table 8.
Among the four products, calcium carbide, as a heavy energy consumption, heavy pollution and resource-related product, was greatly affected by the policy of "the control over both the quantity and intensity of energy consumption" in 2021. The power cost increased and blackout was implemented in the western part of China. In addition, Inner Mongolia gave a push for eliminating calcium carbide and other high energy consuming units. As a result, the internal combustion calcium carbide furnace units with small capacity and laggard technology were largely driven out of the market throughout 2021.
The soda ash capacity decreased in 2021, mainly due to the closure and relocation of Jiangsu Lianyungang Soda Plant and the shutdown of Yunnan Yunwei due to the power hitch. In addition, the domestic soda ash market was in a reshuffle, with some producers backing out of the market, such as Sond Soda Industry Co, Liaoning Dahua Group Co and Jiangsu Zhonghai Huabang.
The decrease of phthalic anhydride capacity in 2021 was because some producers retreated from the market successively due to regional policies and business plans, although a new naphthalene-based unit was put into production.
The reduction in fiber-grade PET capacity in 2021 was because some small producers trimmed capacity due to the epidemic at the beginning of 2021 and there was limited capacity increment through the year.
The market competition is becoming more and more furious with the expansion of capacity. In 2021, the first year of the 14th Five-Year Plan period (2021-2025), the capacity expansion pace slowed down, and the industrial development was focused on being multi-directional, energy-saving and environment-friendly, and high value-added. However, the earlier planned projects were still under construction. It is expected that a large number of olefin, aromatic and chemical fiber capacities will be put into production in the next few years. The total market capacity will continue to expand, but the growth rate may slow down. Petrochemical producers will be faced with more severe challenges. They will be more efficient through management, save energy and reduce consumption through developing new technologies, so as to make more competitive high-performance and high value-added products by, and eventually grow into environment-friendly enterprises.
According to JLC’s annual overview of the chemical industry, traditional commodities were haunted by problems such as supply gluts and homogeneous products competition, and hence they struggled in terms of price and profit. The prices and profits of fine chemicals and new materials such as EVA enjoyed both higher prices and profits due to robust downstream demand.On the other hand, refining and chemical integrated producers showed their leading position because they covered omni-industry chain, had large scale, high utilization of raw oil and made diversified products. More producers will take initiatives to extend into upstream and downstream so as to make the omni-industry chain integration layout come true that enable them to be comprehensively competitive in terms of cost, product type and efficiency.
