China's Petroleum and Chemical Industry Prosperity Index for January 2023 released
Click:0    DateTime:Mar.08,2023

China Petroleum and Chemical Industry Federation, Sublime China Information (SCI)

Summary

China's Petroleum and Chemical Industry Prosperity Index rebounded sharply at the beginning of 2023

Markets started the new year on a positive note, and the petrochemical industry took the lead with a rally in China's Petroleum and Chemical Industry Prosperity Index following the implementation of precise and differentiated epidemic control strategies and the rollout of measures to stabilize growth. Prosperity index of fuel processing industry rebounded sharply, as the export quota of refined oil products increased in December 2022 on a year-on-year basis and the temperature was getting warmer. Index of rubber, plastic products and other polymer products also rebounded in line with the recovery of demand side. With the release of the US Strategic Petroleum Reserve coming to an end, international oil prices bottomed out and prosperity index of petroleum and natural gas extraction industry had a significant rebound. Prosperity index of chemical raw materials and chemical products manufacturing industry gained little, as the surplus supply of chemical raw materials and products was yet to be digested, while production heat degree and inventory turnover rate improved.

Market focus

The export quota of refined oil products and the import quota of crude oil increased sharply

The export quota of the first batch of refined oil products in 2023 increased by 46% year on year. As for the import quota of crude oil, refineries reported relatively sufficient import quotas and the quota of the second batch in 2023 increase by about 20.9% compared with the same period in 2022 (the first batch was due by January 2022). This, coupled with the first batch of quotas announced in October 2022, the total import quota of crude oil to around 132 million tons year to date. The ample quota reflects China's confidence in stable economic growth in 2023, which will greatly shore up the production and sales forecast in the petrochemical industry.

The global economic recession expectations in 2023 are expected to cool down significantly

The rollout of a slew of policies in China boosted the worldwide confidence in Chinese economic growth, and also drove up the economic growth forecast of Southeast Asia and Australia (China’s major mineral trading country). In Europe, the energy crisis threat was gradually waning due to the warmer weather. The natural gas inventory increased significantly compared with the same period of 2022, and the prices fell for a long time in the peak season. Therefore, European countries became more confidence in shrugging off recession.

Suggestions and notes

Market forecast

The significant recovery in demand has boosted market confidence. The sustainability is yet to be seen, and market players remain relatively cautious.

Risk statement

It will take a long time for a full recovery of supply and demand and rising oil prices will still exert pressure on the petrochemical industry.

Overview of China's Petroleum and Chemical Industry Prosperity

China's Petroleum and Chemical Industry Prosperity Index rebounded sharply in January following the orderly implementation of precise and differentiated epidemic control strategies from December 2022. The prosperity index rose to 99.34, up by 4.53 percentage points compared with December 2022, indicating that the index returned to the normal range. The index lost 8.4 percentage points compared with the same period of 2022, and the downside was significantly narrowed (see Figure 1).

4-P1

Figure 1 Range of Petroleum and Chemical Industry Prosperity Index, January 2023

The market forecast improved in January 2023, as the implementation of various measures to stabilize growth boosted market confidence. According to the National Bureau of Statistics, PMI rose from December’s 47 to 50.1, returning to the expansion range.

Industry-wise, the upstream mining industry recovered significantly because the international crude oil prices snapped the continuous decline and bottomed out from December 2022. Accordingly, the prosperity index of petroleum and natural gas extraction industry was still ranged in the overly hot zone (see Table 1). Index of rubber, plastic products and other polymer products also rebounded in line with the gradual recovery of demand, and the index marked a month-on-month rise of 6.79 percentage points, showing the biggest increase among the sub-indices.

4-T1

Prosperity index of fuel processing industry rose by 6.69 percentage points on a month-on-month basis, snapping its continuous weakness, as China's export quota of refined oil increased sharply. Prosperity index of chemical raw materials and chemical products manufacturing industry gained little and was still ranged in the overly cold zone due to increased raw material prices and de-stocking pressure. Therefore, it will take time to recover.

Hot spot analysis and future prospect

1. China reinforces policies to stabilize growth and thus the economic growth forecast rises

Real estate market is an important downstream market of commodities, especially petrochemical products, so the sales area of housing and development & investment have a direct drive on the demand for petrochemical raw materials and products (including plastics, rubber, chemical fiber, coatings, foaming materials, etc.). The national policies have provided full support to the supply and demand of real estate. For example, in December 2022, "three arrows" of real estate finance (loan financing, debt financing, and equity financing) were announced to fully gear up the financial stability for the supply side of real estate; on January 28, 2023, the National Development and Reform Commission and other 17 national ministries and commissions issued the Guiding Opinions on Promoting the Integration of Large Relocated Poverty Alleviation and Resettlement Areas into New Urbanization and Achieving High-quality Development, focusing on promoting the construction of China's new urbanization, accelerating the integrated development of cities and towns, and injecting new vitality into the demand for real estate. Therefore, the market regained confidence at the beginning of 2023.

2. Be alert to the rebound of energy prices

International crude oil supply may continue to tighten and the global energy crisis has not been completely lifted, as a rally in oil prices will erode the profitability of the entire petrochemical industry chain and delay the recovery rate of the demand side.

3. Future prospect

China's Petroleum and Chemical Industry Prosperity Index rebounded sharply at the beginning of 2023, reflecting that market players at home and abroad regained some confidence and showed higher expectations on raw material markets turning from cold to warm. According to the market movement law, the rebound of end-user demand may be supported by some retaliatory consumption, and the sustainability remains to be seen whether the rebound can be sustained. As the international energy supply is tightening, the energy crisis led by natural gas in 2022 will be led by crude oil and the continuously rallying oil prices will impose risk on the petrochemical industry. It should be noted that December and January are usually for annual financial liquidation, so there is a short-term rise in the industry revenues, which is also a driving factor for the boom. The recovery of Prosperity Index cannot be achieved in a short time. It is expected that there will be fluctuations in the first quarter, and an upward momentum in the first half of the year.