The sharp rise and fall of crude oil affected the chemical industry

Crude oil prices surged 14.7% on the previous day and plummeted 5.7% on the following day. The crude oil market has opened a pattern of sharp rise and fall. How about the chemical industry downstream? On September 20, the Styrene Futures Contract and related rules were officially announced. As an important chemical product downstream of crude oil, the styrene market is undoubtedly facing tremendous fluctuation risk.

China is the largest styrene producer and consumer in the world. The large fluctuation of upstream price makes the situation of domestic styrene industry chain more severe, the profit of production enterprises declines, and the profit space of industry chain is compressed. It coincides with the upcoming listing of styrene, the 70th derivative product in China's derivatives market on September 25. With questions, the Securities Times interviewed relevant styrene production and trading enterprises to understand the specific situation. The risk of fluctuation in chemical industry is increasing. The average amplitude of styrene is more than 50%.

China is the largest styrene producer in the world and the largest styrene consumer in the world. In 2018, there were 45 styrene production enterprises in China, with annual capacity of 9.26 million tons and output of 7.68 million tons, accounting for about 25% of the world.

"The fluctuation of crude oil price will lead to the change of downstream styrene price." Zhu Shunlin, general manager of Lishde Chemical Industry in Jiangsu Province, said that the price fluctuations of styrene in recent years were very obvious. From 2015 to 2018, the price fluctuations of styrene market were 68.4%, 55.7%, 48.8% and 66.7% respectively. Taking 2017 and 2018 as examples, the price difference between high and low points of styrene in 2017 is nearly 4000 CNY/ton, and that in 2018 is more than 6000 CNY/ton.

Zhu Shunlin admits that the impact of crude oil fluctuation on styrene industry is huge, most typical in 2008 and 2014. Crude oil prices plunged from $147 to more than $30 in 2008, causing many chemical companies to shut down production. The same was true in 2014, when crude oil fell sharply, styrene prices fell at the waist and the industry changed dramatically. In addition to the upstream crude oil price, as a part of the chemical industry in the middle reaches, there are many factors affecting the price of styrene. Not only the upstream varieties of crude oil, ethylene and pure benzene will be affected from the supply side, but also the downstream demand of EPS, PS and ABS products will have an impact on the price of styrene.

Especially, after 2019, the domestic styrene industry has witnessed a wave of capacity expansion, with more than 500,000 tons of new construction, especially 1.2 million tons of Zhejiang Petrochemical Company and 720,000 tons of Hengli Petrochemical Company. The planned production units in 2019-2023 average 2.7 million tons per year, and domestic supply tends to be excessive.

"In the past 4 or 5 years, domestic styrene production capacity has been increasing slowly, demand has been growing steadily and steadily, the industry is in a tight balance cycle, and the production enterprises have made high profits." However, with the average output growth rate of 21% in the past three years, the current situation of the styrene industry chain is becoming more and more serious, the supply-side increment is large, the profits of the production enterprises are declining, and the profit-sharing space of the industry chain is compressed. Wang Wenlin, a futures analyst at Zhejiang Merchants, said that from the perspective of upstream raw materials, crude oil prices fluctuated sharply and the risk of styrene cost-side fluctuated significantly, while the domestic chemical industry, including styrene, put in more capacity, had a high supply pressure, and the downstream demand slowed down obviously, which led to the reduction of profits in the entire chemical industry. The demand of enterprises and trade enterprises to lock in prices to avoid risks or optimize industrial profits will be significantly increased.

Innovation of price risk management in chemical industry

Styrene market has huge fluctuation space, and contract trading is the main mode of spot trade. Once the two parties sign the contract of sale and purchase, some traders will suffer heavy losses due to breach of contract, and the market urgently needs effective hedging management tools. Optimize market operation.

Zhu Shunlin said that the mainstream pricing method of domestic styrene spot is Anxun's quotation as a reference, mainly monthly settlement, mostly RMB quotation. In previous years, the contract price will refer to Jiangsu regional price and CFR China main port price. The data show that the production capacity of East China, such as Jiangsu, Zhejiang and Shanghai, accounts for about 45% of the total production capacity of the whole country, and is the largest area of styrene production in China. In 2018, the regional output exceeded 3 million tons, accounting for more than 40% of the total output of the whole country.

"The acquisition method of Anxun's quotation is mainly through telephone consultation, market verification and other means to determine the daily quotation, and then through the average calculation to get the monthly average price." Gu Sumin, manager of Shanghai Secco Petrochemical Business, said. It is understood that the current domestic styrene industry sales mode, basically based on monthly quotation. This is somewhat similar to the Prussian price on the spot iron ore market. Price is also determined by telephone inquiry, market verification and other means of daily quotation.

At the same time, in recent years, there are price operation systems such as electronic discs and paper goods in the domestic market of styrene and other chemical products, and many domestic private enterprises have tried to diversify their sales methods to meet the multi-level needs of customers by means of electronic trading and pre-sale products in spot market. Including Shandong Huaxing, Yuhuang Chemical and other enterprise e-commerce platforms have been put into commercial operation successively, selling products through commercial platforms, and even using competitive bidding in commercial platforms, adjusting prices automatically according to market supply and demand. The interviewees pointed out that compared with mature markets such as the United States, China is different in that there are 67 producers with a capacity of 56 million tons in the United States, and 3 million tons in Korea and Japan, that is, 35 producers. In China, there are about 40 manufacturers in the capacity range from 7 million tons to 9 million tons.