The first half of the year saw both surprises and shocks in alkylation oil markets

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Half of 2018 has passed, and the overall performance of the alkylated oil market has been satisfactory, not as pessimistic as expected. Zhuochuang analyzed the overall market for alkylated oil in the first half of the year from three aspects: the market conditions of alkylated oil, the operation status of production facilities, and market supply and demand. 1. The trend of alkylated oil in the first half of the year was quite volatile. Against the backdrop of rising international oil prices, the overall price level of alkylated oil in China in 2018 was higher than that in 2017. The average price of alkylated oil in China in 2018 was 5,838 yuan per ton, representing an increase of 635 yuan per ton compared to the first half of 2017, or a growth rate of 12.20%. There were two key factors that caused significant fluctuations in the market in 2018: one was international oil prices, and the other was the change in consumption tax. In the first half of 2018, international oil prices were generally on an upward trend; cost factors contributed to alkylated oil prices remaining higher than those in the first half of 2017. News regarding the consumption tax came out in January, triggering a significant reaction in the entire oil products market. The alkylation oil market experienced substantial fluctuations that month, with price changes ranging around 1,000 yuan per ton. Since the official implementation of the consumption tax reform in March, the price gap between alkylated oil and gasoline has widened, and domestic alkylated oil has offered significant discounts to downstream industries as a raw material for chemical production. In April, the market was supported by rising crude oil prices, driving positive momentum. After mid-May, due to the reduced or even halted procurement of raw materials by Sinopec, there were significant difficulties in shipping alkylation oil, leading to a downward trend in prices. 2. The performance of the alkylation unit was satisfactory. In the first half of 2018, the average profit per ton for this unit was 106 yuan, which represented a significant improvement compared to the -125 yuan per ton figure in the first half of 2017. The average profit per ton for the alkylation unit increased by 231 yuan in the first half of 2018, reflecting an increase of 184.8%. Due to the impact of consumption tax issues, the market price of alkylated oils fluctuated significantly; whereas, considering the needs of downstream users, etherified C4 products were offered at more favorable prices, resulting in good profit margins for alkylation plants in the first half of the year. In 2018, the average operating rate of domestic alkylation units was 57.59%, while in the first half of 2017 it was 56.85%. The average operating rate of domestic alkylation units increased by 0.74% on a year-on-year basis in 2018. Despite the widespread rumors about a consumption tax, it will have a significant impact on the domestic alkylated oil market. However, due to the significant price advantage of C4 after etherification and the considerable profits generated by these plants, the operating rate of domestic alkylation units in the first half of 2018 was better than that in the first half of 2017. 3. Supply and demand situation of alkylated oil: In the first half of 2018, China’s production of alkylated oil was 4.7295 million tons, up from 4.2619 million tons in the first half of 2017, representing an increase of 467,600 tons or 10.97%. In the first half of 2018, new alkylation units were put into operation in China, including those owned by Huabin Chemical, Shijiazhuang Refinery, Guangxi Yuchai, and Zhanjiang Zhongguan, resulting in an additional total processing capacity of 1.1 million tons. The capacity expansion in the first half of the year was satisfactory; considering that the National VI gasoline standard will be implemented across the country in 2019, capacity expansion for alkylation units is expected to be more concentrated in the second half of the year. In the first half of 2018, influenced by the changes in consumption tax, the activity of downstream oil blending companies that use alkylated oils declined significantly, and their market share also dropped markedly. In the northern part of the country, the downstream demand for alkylated oils is mainly met by refineries and key companies. In the southern region, although some of the supply goes to entities other than Sinopec, oil blending remains the dominant use case, yet demand has clearly declined.