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On February 6, 2018, the annual press conference on the economic performance of the petrochemical industry was held in Beijing. Let’s speak with data and see how the petrochemical industry will develop in the future! ▲According to the latest data released by the **Statistics Bureau, the total revenue of the entire industry in 2017 was 13.78 trillion yuan, representing a year-on-year increase of 15.7%** ； Total profit amounted to 846.2 billion yuan, a year-on-year increase of 51.9% ； The total value of imports and exports was 583.37 billion US dollars, a year-on-year increase of 22.1%. The petrochemical industry indeed \"took the lead in entering a new path of bottoming out and rebounding\" in the just-passed year of 2017. Review and Outlook At the meeting, Zhu Fang, Director of the Information and Market Department of the China Petroleum and Chemical Industry Federation, presented a report titled \"Economic Performance of the Petroleum and Chemical Industry – Review of 2017 and Outlook for 2018\". He pointed out that 2017 was a turning point for the economic operations of the oil and chemical industries. By the end of 2017, there were 29,307 enterprises in the petroleum and chemical industry that met the specified size criteria; their total main business revenue amounted to 13.78 trillion yuan, an increase of 15.7% compared with the previous year. The total profit reached 846.2 billion yuan, representing a 51.9% increase on a year-on-year basis ； The profit margin on main business revenue was 6.14%, up 1.47 percentage points year-on-year ； The cost associated with each 100 yuan of main revenue is 83.19 yuan, a decrease of 0.40 yuan compared to the previous period ； The inventory turnover days for finished goods are 13.5 days ； The average collection period for accounts receivable is 25.8 days ； The industry’s loss rate was 12.8%, a decrease of 0.8 percentage points compared to the previous year ； Fixed-asset investment for the whole year amounted to 2.06 trillion yuan, a decrease of 2.8% ； Total assets amounted to 13.03 trillion yuan, an increase of 5.4%, with a debt-to-asset ratio of 54.03% ； In 2017, the total value of import and export trade for the entire industry was 583.37 billion US dollars, representing a growth rate of 22.1%. Of this amount, exports amounted to 192.98 billion US dollars, with a growth rate of 12.9% ； The deficit was 197.42 billion US dollars, an increase of 45.1% on a year-on-year basis. ? Challenges on the Path of Development Photo: Fu Xiangsheng, Vice President of the Petrochemical Federation. Although the petrochemical industry experienced rapid economic growth in 2017, Fu Xiangsheng, Vice President of the Petrochemical Federation, believes that there are still many challenges and constraints to the industry’s development. The most prominent ones include: first, the increasing strain on resources. In 2017, China’s crude oil imports reached 420 million tons, a 10.2% increase on a year-on-year basis ； The crude oil processing volume was 568 million tons, with the external dependence on crude oil reaching 68.4%, an increase of 3 percentage points compared to the previous year. Natural gas imports reached 95.52 billion cubic meters, a year-on-year increase of 27% ； The apparent consumption volume was 239.4 billion cubic meters, with an external dependence rate of 38.4%, up 3.8 percentage points from the previous year, indicating increasingly severe resource constraints. Second, structural contradictions remain prominent. On the one hand, the traditional problem of overcapacity has not been fundamentally resolved, and the task of reducing capacity remains arduous. Especially with price increases in the past two years, there has been a resurgence in impulses to make excessive investments. In recent years, despite increasing supply-demand imbalances in the refined oil sector and low operating levels of production facilities, new projects have continued to be built or existing capacities expanded; last year, there was also a significant increase in new production capacity in the chlor-alkali and polyvinyl chloride industries. On the other hand, high-end products and specialty chemicals remain in short supply, and the development of strategic emerging industries is still lagging behind. In 2017, the trade deficit for the entire industry was $197.4 billion, a significant increase of 45.1% on a year-on-year basis. The main manifestations are as follows: ▲ The deficit in organic chemicals amounted to 14.68 billion US dollars, a 38.6% increase on a year-on-year basis; the total import volume reached 62.227 million tons, setting another record high, with a 6.3% increase year-on-year ； ▲The deficit in synthetic resins was 35.45 billion US dollars, an increase of 8.5% on a year-on-year basis ； ▲The deficit for synthetic rubber was 9.6 billion dollars, a year-on-year increase of 93.4%; imports amounted to 5.84 million tons, with a growth rate of 74.1% ； ▲The deficit for ethylene glycol was 7.48 billion US dollars, a 52.6% increase on a year-on-year basis; imports amounted to 8.75 million tons, representing a 15.5% increase year-on-year ； ▲The deficit for specialty chemicals was 3.2 billion dollars, a year-on-year increase of 33.7% ； ▲The PX deficit was 12 billion US dollars, a 25.5% increase on a year-on-year basis; imports amounted to 14.438 million tons, representing a 16.8% increase year-on-year. Third, investment has been declining continuously. 2017 marked the third consecutive year of decline; the total amount of fixed asset investment across the industry was 2 trillion yuan, a decrease of 2.8%. Among them, the chemical industry experienced a decline of 5.2%, an increase of 2.5 percentage points compared to the previous year, marking the second consecutive year of decline. The continuous decline in investment may affect the long-term development of this industry. Especially when looking at the relationship between investment and innovation in recent years, it can be seen that fluctuations in investment are correlated with fluctuations in the number of patents, which further increases concerns. In addition, factors such as low investment in research and development, slow transformation from old to new drivers of growth, the need for further improvement in efficiency levels, and increasing trade frictions also hinder the high-quality development of this industry. High-quality development is a key focus. Nevertheless, after analyzing the international and domestic situations, Fu Xiangsheng remains optimistic about the economic performance of the industry in 2018. The Petrochemical Federation has set the overall target for the economic performance of the petrochemical industry in 2018: the main revenue of the entire industry is to increase by around 10%, reaching over 15 trillion ； Total profit increased by about 5%, reaching nearly 900 billion yuan ； The total value of imports and exports increased by about 10%, exceeding 630 billion US dollars. Fu Xiangsheng pointed out that the overall approach for the economic operation of the petrochemical industry in 2018 was as follows: to thoroughly understand the essence and core principles of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, to grasp the new characteristics and changes in the main contradictions of the new era, to adhere to the fundamental requirement of high-quality development, to maintain a steady yet progressive pace of progress, to uphold the new development concepts, to focus on supply-side structural reform as the key strategy, to continue to intensify efforts to phase out outdated production capacities, to advance the strategies of innovation-driven development and green development, to broaden the scope and perspectives of international exchanges and cooperation, to accelerate changes in quality, efficiency, and driving forces within the petrochemical industry, to promote higher-quality economic development, and to drive the transformation of the petrochemical industry from a major industry to a strong one. Entering a new phase of high-quality development, in order to achieve the annual goals for the industry’s operations, the following tasks should be given priority: 1. Phasing out outdated production capacity; 2. Increasing investment in technological innovation; 3. Promoting green development; 4. Building industrial clusters; 5. Deepening international cooperation; 6. Enhancing predictive and early-warning capabilities. Looking at various sub-sectors of the chemical industry: ▲In 2017, China’s fertilizer market remained weak, but prices rose compared to the previous year, with fluctuations occurring among different types of fertilizers ； ▲In 2017, domestic consumption of market-based fertilizers continued to decline, with the overall apparent consumption volume dropping by about 1% ； ▲Exports of chemical fertilizers, both in volume and value, continued to decline, by 9.6% and 7.4% respectively ； ▲The continued weakness in exports has further increased pressure on the domestic market ； ▲In 2018, China’s total fertilizer consumption is expected to remain around 56 million tons (in terms of pure content), roughly the same as the previous year ； Exports may see a resurgence in growth, but the magnitude will not be significant ； ▲The overall level of fertilizer prices in 2018 remained roughly the same as the previous year. In 2017, the market for basic chemical raw materials showed a clear recovery; supply and demand grew steadily, prices increased significantly overall, and the profitability of the industry improved markedly ； ▲Looking at price trends, inorganic chemical raw materials exhibit little volatility and remain relatively stable ； ▲The prices of organic chemical raw materials are highly volatile, with overall price increases being significant as well ； ▲In 2018, China’s market for basic chemical raw materials is set to maintain a positive trend, with stable supply and demand, slight price increases, and reduced volatility compared to the previous year. Summary: The industry’s capacity for early warning needs to be improved. According to information provided by the China Petroleum and Chemical Industry Federation, based on the trends in the domestic macroeconomy and the current conditions in the petroleum and chemical market, it is expected that the market in this sector will continue to show positive trends in 2018, with overall price levels remaining upward, though at a slower pace. Changes in prices are also a matter of concern for both those within and outside the industry. On the one hand, thanks to rising raw material prices, related companies achieved good profits in 2017 ； On the other hand, while the prices of major chemical products remained generally stable, some products such as synthetic rubber experienced short-term sharp fluctuations in price. In 2017, when prices of relevant raw materials experienced irrational fluctuations, there was an even stronger call from within and outside the industry to enhance expectation guidance, improve situation forecasting, and provide early warnings about risks. At present, the Petrochemical Federation already has an oil and gas data platform as well as a chemical industry big data platform in operation. In the future, the functions of these two platforms will be fully utilized to improve the industry’s statistical monitoring system, provide market information and early warning signals, and help the entire industry to continuously enhance its operational quality and efficiency. New breakthroughs have been achieved in various key areas across the industry, but it still faces numerous challenges and constraints. The old issues related to structural adjustment are undergoing new changes, and the growing pressure from imports is another issue that requires attention.