If Crude Oil Plummets, Which Chemical Products Will Be 'Unbearable' First?

The Russian-Ukrainian war caused the international oil price to exceed 100 US dollars per barrel, but the continuation of the war and the market's concerns about high oil prices caused the international crude oil market prices to continue to fluctuate sharply in the past half month. International oil prices fell sharply by 1% on April 1; international oil prices fell sharply by 7% on March 31.

The high cost of the chemical industry brought about by the high level of crude oil has caused the global chemical industry to face a huge cost burden, not only for important regions of chemical production, such as Europe and China, but also for important oil-producing countries, such as the Middle East, North America and other regions. The high cost burden brought by high oil prices will inevitably become the main reason for restraining consumption, and this has become an industry consensus.

Therefore, the voices in the industry about whether high oil prices can be sustained are getting louder, and the systemic risks of the global chemical industry brought about by high oil prices are gradually accumulating with the continuation of high oil prices.

According to the current situation of global oil supply and demand, if the situation in Russia and Ukraine eases and the world's major oil-producing countries resume or increase production, it may bring about a sharp drop in oil prices in the short term. From the recent sharp fluctuations in oil prices, it can also be seen that the uncertainty and risks of the crude oil market are increasing their impact on the market, and investors in the industry are shifting to the short side.

Therefore, if oil prices drop sharply in the short term, which products in China's chemical industry will fall first?

In order to solve this problem, the following ideas can be studied:

1. If the oil price drops sharply, it is directly related to the price of crude oil, and there is a strong correlation between price fluctuations, and it must follow the crude oil market to give timely feedback.

At present, in the petrochemical industry chain, the pricing basis of crude oil, refining and by-products is directly related to crude oil. For example, there are hundreds of different oil types in the world, and in 99% of the pricing formulas, the pricing weight of Brent and WTI exceeds 80%. In addition, in the pricing formula of gasoline, diesel and kerosene in the Chinese market, the weight of Brent and WTI also exceeds 50%. When the oil price exceeds US$80/barrel and is lower than US$40/barrel, the extreme price pricing model is implemented.

In addition, the international market pricing formulas for refining by-products such as naphtha, petroleum coke, and asphalt also mostly refer to international crude oil as the pricing benchmark. For example, the pricing weight of Brent crude oil on Northeast Asia naphtha exceeds 98%. Natural gas, propane, liquefied petroleum gas and other products have more than 98% correlation with naphtha and crude oil. For example, the correlation between natural gas and crude oil is more than 85%, and the price of propane imported into China has more than 85% correlation with naphtha. 92% etc.

These products have a strong correlation with crude oil, which mainly reflects that the pricing formula used in their pricing formula is a crude oil-related pricing formula, or a pricing formula that has an indirect relationship with crude oil. The market price fluctuations of such products will always reflect the impact of crude oil price fluctuations.

Therefore, if the price of crude oil falls sharply, such products will also give feedback on the same direction fluctuations for the first time.

For other chemical products, if the price of crude oil plummets, it will be more affected by price fluctuations caused by fluctuations in profit ranges.

2. If the oil price falls sharply, the products with weak correlation with the fluctuation of crude oil price may be reflected in the sharp shrinkage of the profit range, which will buffer the impact of market fluctuations caused by the decline in the raw material side.

If the price of crude oil falls sharply, then the products with weak correlation with the price of crude oil, such as basic raw material products, polymer material products, etc., will have more reference to the fluctuation impact of their production profit margins for the feedback of market price fluctuations.

The pricing logic of polyolefin products is based on the ex-factory price of major global manufacturers as the benchmark for pricing. For example, polyolefin imported from China is priced with reference to the Northeast Asian market. In addition, as polyolefin is the terminal product of the petroleum industry chain, the impact of oil price fluctuations on the price of polyolefins has a lag, which fully reflects the cost transmission time of the industry chain. Generally, the lag period of polyolefin products is 15-30.

Therefore, if the price of crude oil falls sharply, the production profit of polyolefin products will shrink, and the price of polyolefin products may fall in the same direction, but with a lag of about 15 days.

For basic chemical products, alkyd ketone phenol ester compound products, the market fluctuations also mostly refer to their own production profit margins. Adjustments brought about by cost changes within a limited profit margin to adapt to the consumer demand of the downstream market.

3. If oil prices fall sharply, which chemical products will be "unbearable" first?

To solve this problem, we must first solve the current profit margin of chemical products. To this end, the profit margin levels of 82 chemical products in the past 6 months were calculated. Without considering the high profits brought by the supply and demand relationship of chemical products, a sharp drop in oil prices may lead to the first decline of high-profit products.

According to the calculation results, it can be seen that within the scope of China, DMF, BDO, vinyl acetate, TMP and other products have maintained a relatively high profit margin level in the past six months. Products such as ethylene glycol, butadiene, PX, ethylene oxide, and propylene have suffered significant losses in the past six months.

Therefore, if combined with the changes in the market supply and demand relationship, such as the rapid development of degradable plastics, the increase in demand for BDO, and the demand for related medical materials brought about by the epidemic, the demand for its pharmaceutical intermediates has increased, which will cause its relatively high demand. large production profits.

However, if we only consider the rise in crude oil prices, among them vinyl acetate, POM, acrylic acid, EVA, epichlorohydrin, ABS and other products may be the first to fall when oil prices fall. But butadiene rubber, phthalic anhydride, bisphenol A, adipic acid, butyl acrylate, styrene-butadiene latex, styrene-butadiene rubber, propylene oxide and other products are also likely to fall in the same direction as oil prices. It is recommended that people in the industry can Focus.

Finally, as the source of the global chemical industry chain, crude oil's influence in the global chemical industry cannot be underestimated. The fluctuation direction of oil prices also determines the long-term fluctuation direction of the chemical industry chain, which will have a huge impact on the production, sales, profits and trade of products. At present, oil prices continue to be high, and it is recommended to focus on the huge impact brought by the sudden change in oil prices.