Since early July, the Wenhua Chemical Sector Index has been rising from 125 points, closing 7 positive lines in a row, breaking through 131 points, and returning to the level at the beginning of May. Specifically, the polyester industry chain increased by more than 5% last week, and the plasticizing industry chain increased by less than 4%. Analysts said that the continued rebound in crude oil prices was one of the main reasons for the rebound in petrochemical products. However, crude oil prices fell sharply last Friday night, and most chemical products reduced their positions and fell at the beginning of this week. In addition, the industry is currently in the off-season for consumption. Although the peak consumption season for chemical products in the second half of the year generally starts in mid-to-late August, and most of the real peak seasons start from September to October, in recent years, the dominance of the cost side and the macro perspective has made The rise and fall of chemical product prices often deviate from fundamentals, and the characteristics of off-season and peak season are often smoothed out, and there are even situations where the off-season is not weak and the peak season is not prosperous. Therefore, in the later period, we need to focus on whether chemicals can return to the logic of supply and demand.
Varieties with good consumption trends have better price elasticity
1. All links in the industrial chain have been replenished.
Comparing the market conditions in the first half of the year, we can find that in mid-to-early July, the chemical market prices were basically the same as before the Spring Festival. We are currently at the starting point of the second half of the year, which is the off-season for downstream consumption. The market’s expectations for a rebound in consumption in the second half of the year are similar to the expectations for the new year at the end of last year.
After the continuous decline in the second quarter, the phased bottom of chemical product prices has been determined, and inventories in all links are at relatively low levels. Therefore, before the arrival of the peak season, companies are more willing to replenish their stocks at low prices, which can be seen from the high start-up of polyester and the fact that product inventories have not increased significantly. The rebound in raw material prices and the market’s expectations for the peak season are the triggers for downstream companies to increase stocking. What they show is that the market mentality is changing from unoptimistic to optimistic in the second quarter, and there are certain expectations for consumption in the second half of the year. From this point of view, the market has more expectations for a rebound in consumption in the second half of the year. Because this expectation is currently difficult to falsify, macro-bullish funds are active. This logic is reflected in polyester, polyolefin, glass and other sectors. Although before the arrival of the peak season, downstream bargain hunting has made the fundamentals better, the performance of the polyester sector is significantly stronger than other sectors, mainly because Since the beginning of this year, the export of PTA and downstream polyester yarn has been good, and the recovery of textile and clothing has been better than that of other terminal chemicals.
From a rhythm perspective, the rebound in chemical products continued before the Spring Festival. After the Spring Festival, when demand entered a reality testing period, the market realized that reality was different from expectations, and chemical prices began to fall. In the meantime, there is also a cost drag caused by the oscillation and fall in crude oil prices, and crude oil and downstream consumption rhythms are highly consistent. Last week, macro bullish sentiment was released. As crude oil prices weakened, the rebound momentum of chemical prices weakened rapidly. It can be seen that in the current round of sharp rise and fall of chemical products, the role of funds is more obvious.
At present, all links in the chemical industry chain have replenished stocks to a certain extent. Whether there will be a new round of impetus for the market rebound depends on one hand when crude oil prices stabilize the cost center, and on the other hand we must pay attention to the recovery of consumption in the second half of the year. We expect that chemicals may fluctuate in the short term.
2. Fundamental differentiation leads to differences in market strength
Since the end of June, the continued strengthening of crude oil prices has clearly been a bullish guide for chemical products. However, the supply and demand gap between chemical products has led to different varieties. Chemicals with better supply and demand are more likely to be boosted by rising crude oil prices, and corporate profits may expand; chemicals with greater supply and demand pressure lag behind raw materials during cost-driven increases, and corporate profits tend to decline. During this round of rising chemical prices, the PTA processing gap has recovered from a low of less than 300 yuan/ton to more than 400 yuan/ton. It can be seen that in addition to cost drivers, there are also positive factors in the supply and demand side of PTA.
Last week, due to the maintenance of Fuhaichuang’s 4.5 million tons and Jiaxing Petrochemical’s 1.5 million tons, and the load reduction of Yisheng New Materials and Yisheng Hainan, the concentration of equipment problems led to a phased contraction in PTA supply. At the same time, the operating rate of polyester has climbed to a high of 94%. Calculating weekly supply and demand, PTA is dynamically destocked, so this round of PTA rebounds greatly. Also a polyester raw material, ethylene glycol has a weaker supply and demand side than PTA. During this round of rebound, naphtha integrated processing profits have been squeezed again, falling from -USD 100/ton to -USD 150/ton. In addition, asphalt, which is closely related to crude oil, also performs worse than PTA. As the import of asphalt raw material diluted bitumen gradually resumes, there are expectations for short-term supply growth, and consumption is in the process of transitioning from off-season to peak season and has not yet recovered significantly. The weak short-term supply and demand has caused asphalt processing profits to be under pressure during this round of rebound. It can be seen that it is also a cost-driven increase, and the difference in supply and demand leads to differences in the strengths and weaknesses of chemical products.
3. The willingness of downstream companies to hold goods has increased slightly
In the first half of the year, chemical product prices continued to fall, and spot dealers were generally less willing to hold stocks. However, as crude oil prices stabilized and rebounded, the market’s willingness to stock up increased. Some of them were just in need of restocking, and some were stocking up on dips to prepare for the peak season in the second half of the year. . As inventories are transferred from upstream production companies to midstream and downstream, the price elasticity of related products will increase. Among chemicals, PVC and ethylene glycol are more obviously suppressed by inventory. The former is mainly due to insufficient demand, which makes it difficult to remove inventory, while the latter is attributed to the increase in supply, which leads to high inventory. However, in the second half of the year, consumptionOn the one hand, the destocking of ethylene glycol is due to the obvious contraction of the supply side, and on the other hand, the demand for downstream polyester performs better than in the traditional off-season in previous years, which jointly promotes the destocking of ethylene glycol. “Feng Xiaofen, an analyst at Founder mid-term futures, said.
According to Xie Wen, head of the chemical group of Zhongda Futures, the motivation for polyester downstream replenishment mainly comes from the expectation of the peak season, and the price of raw materials is low in the early stage, so downstream companies are actively replenishing their stocks. “From the demand side, polyester inventory is not high this year, and the operating rate is rising. The domestic economy is showing a weak recovery, and textile and clothing retail sales have increased year-on-year.” She said.
As a representative of the olefin end, polyolefin is similar to polyester. The overall rebound is accompanied by an obvious weakening of the basis. Although inventory is constantly being reduced, it is mostly due to shrinkage on the supply side. “In the process of rising polyolefin prices, the upstream price increase has been relatively slow, and the superimposed basis has weakened, which has brought better entry opportunities to polyolefin futures traders.” Dai Yifan, energy and chemical director of Nanhua Futures, said that chemical products In this round of destocking, there is no obvious change in the improvement on the demand side. It is more about short-term supply reduction.
According to Dai Yifan, due to high temperatures in summer, problems such as device failures and leaks have led to an increase in unplanned losses. It is also the summer maintenance period. Due to early market expectations, multiple factors have led to low operating rates of many chemical products. For example, PVC, which has seen significant upstream destocking recently, saw its operating rate fall below 70% from June to early July, basically at the level of the peak of dual control in 2021; styrene, which has accumulated less inventory than expected, has an operating rate of only 65%. is at a low level throughout the year.
According to the reporter’s understanding, although the current replenishment of aromatics and olefins in the downstream market has increased, driving the spot market transactions to improve, the large amount of replenishment is not obvious, and the industry is still relatively cautious about later expectations.
“From the perspective of the polyester market, there was indeed a phenomenon of raw material replenishment in May. At that time, the raw material end dropped significantly, and there was a demand for replenishment in the off-season downstream. Polyester production and sales performed well, but after June, the inventory of polyester products Accumulated from 1.18 million tons to 1.28 million tons, polyester prices have sluggishly increased, profits continue to decline, and downstream factories have stronger wait-and-see intentions.” Dai Yifan said that in terms of terminal weaving, the number of order days has dropped from 12 days in May to the current 7 days. The weaving operating rate dropped by 5 percentage points, and the inventory of gray fabrics accumulated from 320,000 tons to 360,000 tons, indicating a lack of motivation for continued large-scale restocking downstream.
“Currently, polyester factories downstream of ethylene glycol are mainly stocking up for urgent needs, and have not seen any obvious replenishment behavior. The destocking in the second quarter was caused by a decrease in supply and an increase in demand. Since July, with the restart of the ethylene glycol unit, , supply rebounded rapidly, the strong supply and demand did not drive prices strongly, and ethylene glycol fluctuated with the cost side.” Feng Xiaofen said.
In this regard, Xie Wen also believes that the current stocking of the polyester market has come to an end. In the case of tight funds and strong PTA prices, there is a high probability that downstream companies will continue to dynamically replenish their inventories. “From a rhythm perspective, inventory replenishment is more likely to be based on cost-side changes, and the volume of polyester prices falling during the day may rise in a pulse-like manner,” she said.
Feng Xiaofen also believes that the sustainability of this round of polyolefin replenishment is not good. Since new downstream orders have not improved significantly, and some downstream factories are facing pressure on finished products, this replenishment is more of low-priced supply in the early stage, which is highly cost-effective. There is a high probability that the replenishment rhythm will return to just-in-time stocking in the later period.
“Overall, this round of rebound in chemical products is indeed caused by the replenishment of stocks, but the differences between varieties are large. Although the long-term expectations have improved, it is not obvious.” Dai Yifan believes that this round of rebound is not sustainable, and the decline is not sustainable. At the time point, we need to pay attention to the changes in the market at the end of July.
The replenishment of chemical products mostly occurs before the peak season. Investors need to take into account the positive impact of advance replenishment time on the market in strategic allocation. In this regard, Dai Yifan said that the replenishment cycle of chemical products is mainly based on the fluctuation of demand exceeding rigid table demand, which has a significant impact on explicit inventory and thus affects the market. He said: “When the inventory in the downstream channels dries up, once expectations improve, it will easily lead to downstream replenishment, which will quickly deplete the explicit inventory, ultimately affecting the market. On the contrary, when the inventory in the downstream channels is congested, the rate of digestion of the explicit inventory will It was very weak, which ultimately led to the market weakening beyond expectations.”
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