Shenzhen Enterprise Leads High-end Compound Fertilizer Market
The international crude oil price in 2008 experienced dramatic fluctuations, resembling a rollercoaster ride. At the start of the year, the NYMEX oil price was as low as $86 per barrel, but it surged to $147 per barrel by mid-July, marking an increase of 71% within just six months. However, this upward trend was abruptly halted due to the global economic crisis, leading to a sharp decline. By the end of the year, prices had dropped below $50 per barrel, a decrease of nearly 80%. This volatility had a significant impact on the entire oil sector.
He Wei, an analyst at Bank of China International, noted that the upstream oil production, downstream refining, and petrochemical industries made substantial provisions for falling inventory prices in the second half of 2008. He emphasized that the main challenge for the petrochemical sector this year is the demand shock. The rapid expansion of production capacity from the previous year will gradually be released, potentially leading to overcapacity in the industry.
Looking ahead, many analysts believe that crude oil prices will remain relatively low. Sinopec and PetroChina have shown different performance in the stock market. As of April 23, Sinopec’s share price rebounded by 37.89% since the beginning of the year, while PetroChina’s only increased by 13.96%. According to He Wei, this reflects market expectations regarding the direction of crude oil prices.
He Wei projects that when international oil prices fall below $45 per barrel, the gross profit per share index shows that Sinopec Corp. outperforms PetroChina and CNOOC. This is largely due to Sinopec's strong upstream and downstream structure, which gives it better resilience against oil price drops.
Bohai Securities analyst Zhang Yanming believes that factors supporting oil prices, such as liquidity, are gradually diminishing, though still present. Oil prices may find a new range near $50 per barrel, and with positive economic data, they could rise further. However, this scenario depends on improved economic conditions and effective recovery in oil consumption.
He Wei predicts that global crude oil demand in 2009 will remain weak, keeping prices at a relatively low level—below $70 per barrel. In response to weak demand, production cuts may become a strategy for major oil companies. Recently, OPEC proposed reducing daily oil supply by 4 million barrels to stabilize prices. However, He Wei argues that many countries have already built infrastructure and launched projects based on higher oil prices, making it difficult for them to adjust quickly to lower prices.
As oil prices remained sluggish, the refining industry saw some benefits. On December 18, 2008, the State Council issued a circular on implementing refined oil pricing reforms, signaling a shift toward a more market-oriented mechanism. This decision was seen as a landmark event for the refining sector.
Overall, He Wei expects the refining industry to remain relatively stable this year. However, the downstream petrochemical industry faces uncertainty. While some analysts are optimistic, others remain bearish. Many A-share listed petrochemical companies reported losses in the first quarter of 2009, primarily due to weak demand rather than inventory write-downs from 2008.
Companies like Shanxi 3D and Shenyang Chemical reported significant losses, citing reduced demand and falling product prices. He Wei notes that the petrochemical industry is facing both weak demand and expanding supply, leading to potential overcapacity. For example, numerous ethylene projects in China are expected to come online between 2009 and 2010, adding 7.8 million tons of capacity. Combined with Middle East expansions, this could lead to excess supply globally.
While some analysts, like Cing Dingkun, see signs of improvement in March, including rising chemical prices and increased output, the long-term outlook remains uncertain. Whether this trend continues will depend on broader macroeconomic adjustments. Overall, the petrochemical industry is navigating a challenging landscape.
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