Chemical Market Ends Ten-week Losing Streak as Supply Tightens

The chemical industry index has fallen by 23% in the past three months, but judging from the market trend in August, the overall decline has narrowed. After falling for 10 consecutive weeks, it stopped falling and turned red this week.

In the 34th week of 2022 (8.22-8.26), there are 43 kinds of commodities in the chemical sector that have increased month-on-month in the commodity price change list. The top 3 commodities are maleic anhydride (4.92%), epoxy resin (4.72%), ring Oxychloropropane (4.17%). A total of 30 commodities decreased month-on-month, and 2 commodities decreased by more than 5%, accounting for 1.8% of the monitored commodities in this sector; the top 3 products with a decrease were sulfuric acid (-7.94%) and hydrochloric acid (-5.77%) , nitric acid (-4.86%). Both rose and fell by 0.06% this week.

In August, the chemical industry generally showed a trend of first falling and then stabilizing, and it rose slightly at the end of the month. The specific reasons are as follows:

First, the trend of the entire chemical industry is closely related to the trend of crude oil. Since June, international crude oil has been bottoming out in repeated ups and downs. According to the monitoring data of the business agency, Brent crude oil has fallen by US$30/barrel from June 9 to August 17, with an amplitude of 25%. In August, crude oil was constantly fighting between the current situation of tight supply and the risk of declining demand brought about by economic recession expectations. Crude oil showed a "W"-shaped trend of first falling, then rising, then falling and rising again. During this period, fluctuations were more frequent, and oil prices stagnated and bottomed.

Second, measures such as power and travel restrictions have tightened the domestic raw material supply side, and the supply pressure has narrowed and the decline has slowed down. At the beginning of the month, manufacturers successively received notices of orderly electricity consumption. Although this year's power cuts were not as serious as last year's, and no "strong measures" were taken to directly switch off the power supply in previous years, this year's electricity consumption peak is still based on maintaining residents' daily electricity consumption. Mainly, industries with large electricity consumption such as factories and construction sites must "make way" for residential electricity consumption. In addition, in August, many provinces across the country officially took effect on new restrictions and prohibitions on travel. Shandong, Zhejiang, Guangdong, Gansu, Shanxi and other provinces have formulated new restrictions on the passage of hazardous chemicals vehicles. Large domestic chemical production sites have restricted transportation or caused difficulties in raw material transportation, extending the delivery time of raw materials.

In addition, the international situation is still severe, and crude oil is still fluctuating in the short term, but from a global perspective, the decline in factory operating rates and the shutdowns caused by various force majeures are still occurring. Globally, the supply of raw materials is expected to continue to shrink. However, the current consumer market is still in a relatively low season, and the follow-up of terminal demand is more cautious. At present, the domestic stable growth policy continues to exert efforts to superimpose the positive impact of macroeconomics, and the market of some chemical products has been repaired.

In summary, many factors such as production restrictions, power restrictions and travel restrictions all provide the impetus for the "rise" of the market at the end of the month. Taking the production stoppage and production restriction as an example, from the perspective of domestic phenol and ketone enterprises, the annual operating rate of domestic phenol ketone factories has remained at 95% except for routine short-term maintenance every year, but the operating rate of the industry dropped to 75% in August, and many supporting downstream industries. During the shutdown of the chain, driven by the expected decrease in the supply side, the phenol-bisphenol A-epoxy resin industry chain is showing an upward trend. Taking power curtailment as an example, Anhui, Sichuan, Jiangsu, etc., the major chemical provinces, have started orderly electricity consumption, resulting in a tight supply of local main chemical raw materials, and the corresponding bulk chemical raw materials have risen significantly.

The reduction in supply will continue to spread, and the market inventory will decline again, providing support for the surge in chemical raw materials. It can be seen from the data at the end of August that the industry has risen, and the chemical market in September will continue this trend and continue to rise. However, from a macro perspective, domestic demand is shrinking, manufacturing orders are insufficient, and corporate profits are in trouble. It is still difficult to achieve great benefits in the short term. At the same time, the international situation is not optimistic, and exports have not improved significantly. In the long run, the market continues to rebound. Insufficient, future growth is limited.