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Petrochemicals are moving to the left, while coal-based chemicals are moving to the right. This year, the domestic energy and chemical industry market is likely to see a sharp division. Author/Source: Sinochem News Network Date: 2020-02-11 Clicks: 49 Due to the sudden outbreak of COVID-19 in China, a major oil consumer, international oil prices have dropped significantly recently. Meanwhile, coal mining and transportation in China have been disrupted, leading to tighter supplies of coal and an increase in its prices. Between one rise and one fall, it indicates that the existing balance of competition in China’s petrochemical and coal chemical industries this year will be disrupted, leading to a sharp differentiation and restructuring of the domestic energy and chemical market. The world economy remains sluggish, and the pandemic in China has further heightened concerns about a decline in crude oil consumption. Since the tense standoff between the United States and Iran in January, which led to WTI oil prices soaring to around $65 per barrel, international oil prices have dropped by nearly 25% in just one month. Even after OPEC+ signaled a clear intention to cut production recently, oil prices continued to decline, confirming that a technical bear market has indeed set in. On February 10, international oil prices continued to fall. The price of WTI crude oil for delivery in March in the United States was $49.57 per barrel, a 1.49% drop from the previous day, breaking below the $50 per barrel mark. In the field of maritime shipping, affected by the pandemic, international trade has cooled down, the BDI shipping index has declined, and ocean freight rates for crude oil have also dropped to some extent. With the sharp drop in international crude oil prices and falling shipping costs, the price structure of the global and domestic petrochemical industry is likely to undergo significant changes this year. Lower costs will, in the short term, put pressure on petrochemical companies’ inventory management systems and their mechanisms for mitigating market risks; however, in the longer term, they will enhance the competitiveness of the petrochemical industry chain, enabling it to capture a larger share of the market in a competition driven by prices. The Chinese chemical market is unique, characterized by a \"dual-led\" structure with oil-based and coal-based chemicals. While international oil prices have plummeted, the domestic coal market presents a completely different picture. Affected by the pandemic, the resumption of operations and production rates of domestic coal mines have been impacted to varying degrees. Supply from mining areas has been severely restricted, port resources are tight, and the shortage of coal in the market has worsened. Meanwhile, there is a strong demand for thermal coal during the heating season, and this imbalance between supply and demand will inevitably drive up coal prices. Recently, coal prices in China have been rising slightly on a continuous basis. According to information released by the China Coal Transport and Marketing Association, China Shenhua has increased the benchmark price for 5500-kcal coal in February by 7 yuan, to 562 yuan per ton; the price of 5000-kcal coal rose by 8 yuan, to 502 yuan per ton. Market analysts expect that in the coming period, coal prices will remain high until domestic coal supply shortages ease. Rising coal prices are naturally beneficial for domestic coal mining companies, but they could act as a further catalyst for the coal chemical industry. The reason why the domestic coal chemical industry has been able to grow and develop into a new industrial force that cannot be ignored any longer is largely due to its advantages in terms of raw material availability and cost. By constructing pit-side factories near coal mines, coal-based chemical production processes such as coal-to-olefins, coal-to-ethylene glycol, coal-to-methanol, and coal-to-synthetic ammonia can gain greater competitiveness and price advantages over domestic petrochemical companies that use imported oil and gas as raw materials. For example, in the production of polyolefins, the production costs of domestic coal-based plants are about 1,000 yuan per ton lower than those of coastal refining companies, while the production cost of ethylene glycol is also about 500 yuan per ton lower. This is the most important fundamental factor that has enabled China’s coal chemical industry to grow and thrive amid competitive pressures in both domestic and international markets. However, under the current circumstances of falling international oil prices and rising domestic coal prices, the cost advantages of the coal chemical industry could quickly disappear. Once the balance of competition is disrupted, the domestic energy and chemical industry market may experience rapid differentiation and restructuring this year. It can be predicted for now that, at least in the first half of this year, the domestic energy and chemical industry as a whole is likely to experience contraction. Within this shrinking market, the petrochemical sector will be able to capture a larger share thanks to its cost advantages, thereby exerting a significant crowding-out and substitution effect on the domestic coal chemical industry. China’s coal chemical industry has gone through many challenges, developing from difficult circumstances to its current state, which is no easy feat. This time, in the face of this sudden epidemic, the regulatory authorities have planned ahead by accelerating the resumption of coal mine operations, giving priority to ensuring the transportation and supply of coal, and flexibly increasing imports of coal from abroad in order to stabilize the domestic coal supply and demand market, which is likely to be of critical importance for China’s coal chemical industry to get through this difficult period.