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The Post-Pandemic Era: Coal chemical products are expected to see a recovery amid fluctuations. Author/Source: Sinochem New Network Date: July 24, 2020 Clicks: 120 Since May, as the pandemic was brought under effective control in China, the chemical industry has gradually resumed normal operations, and its key sub-sector, coal chemicals, has also entered a period of recovery. Most coal chemical products have begun to recover steadily, with market participation also increasing gradually. However, in July, the prices of some coal chemical products began to fluctuate downward, with the market showing volatility and an increase in the frequency of such fluctuations, which once again triggered concerns within the industry. In this regard, many market observers believe that in the post-pandemic era, especially when the pandemic has not yet been effectively controlled abroad, there are still various uncertainties, and any negative factor could trigger market fluctuations. Given that the main products in the current coal chemical product chain have moved away from the bottom range, and with decreasing amplitude in price fluctuations and a relatively reasonable balance between price and volume in transactions, short-term consolidation is more conducive to the development of market trends in the future. The entire industry chain is expected to see a recovery amid fluctuations in the second half of the year. From Panic-Induced Plummets to Recovery-Driven Rises According to statistics from Henan Chemical Industry Network, in the first quarter, affected by the pandemic, 80% of the 13 key coal chemical products under monitoring in the coal chemical industry chain experienced sharp price drops. The prices of certain products such as crude benzene and hydrogenated benzene dropped by more than 50% compared to the beginning of the year, reaching new lows in recent years. Starting from the second quarter, as the epidemic situation in the country was gradually brought under control, among these 13 key coal chemical products, half saw price increases while the other half saw decreases, and the rate of decline began to slow down. Thus, the panic-driven plunge came to an end, and the market stopped falling and stabilized. From May to June, as downstream industries resumed operations, the product markets across the entire coal chemical industry chain showed an upward trend for two consecutive months. In May, prices rose for 69% of the products. The top five products with the highest price increases were anthracene oil, crude benzene, industrial naphthalene, hydrogenated benzene, and maleic anhydride, with prices of 2,300 yuan per ton at the end of the month (the same for subsequent figures), 2,800 yuan, 3,600 yuan, 3,450 yuan, and 5,800 yuan respectively. The month-on-month price increases were 27.8%, 27.3%, 16.1%, 13.1%, and 7.4% respectively. In June, prices rose for 77% of the products. The top five products with the highest price increases were high-temperature coal tar, medium-temperature coal pitch, modified coal pitch, industrial naphthalene, and anthracene oil, with prices of 2,470 yuan, 2,400 yuan, 2,600 yuan, 4,050 yuan, and 2,550 yuan respectively. The month-on-month price increases were 30%, 20%, 18.2%, 12.5%, and 10.9% respectively. The person in charge of information at Henan Chemical Industry Network analyzed, \"The data shows that in the first half of the year, the coal chemical product sector went through a period of sharp declines due to panic, followed by a rebound as things stabilized.\" However, the rankings of product price increases in May and June show that the rebound was intermittent. In May, the price increases for crude benzene and hydrogenated benzene were 27.3% and 13% respectively, while in June they dropped by 9.6% and 13% respectively. Starting in July, price fluctuations of the product became more frequent, with changes occurring even on a weekly basis. This indicates that the market conditions for products across the entire industrial chain have entered a period of stagnant adjustment, with continuous price rebounds being hindered. It is expected that volatility will be the norm in the third quarter, with bottoming out and recovery likely to be the dominant trend. ” The industry is under pressure with losses becoming the norm. According to Xu Aijun, deputy general manager of Anhua Group Co., Ltd., due to the sudden outbreak of the pandemic this year, along with unfavorable factors such as a weakening international environment, the coal chemical industry has suffered significant impacts, and losses have become the norm for these enterprises. Among them, the price of methanol dropped from 1,800–1,900 yuan at the beginning of the year to 1,400–1,500 yuan. Methanol was in a downward trend from January to April, and it only began to stabilize after May; however, it is still operating at a loss. Furthermore, the ethylene glycol market has also faced unprecedented shocks; domestic prices dropped from 5,300 yuan in January to 3,300 yuan in April, resulting in substantial losses for many companies. To this end, Henan Energy Group Company, whose main coal chemical product is ethylene glycol, kept only one of its seven production units operational during April to June; this phenomenon is no longer an isolated case within the entire domestic coal chemical industry. Among coal chemical products, aside from coal-derived olefins which are in a fairly good condition, others such as coal-derived methanol, coal-derived natural gas, coal-derived ethylene glycol, and coal-derived aromatics have all been affected. “However, May and June can be regarded as the bottoming period for a gradual recovery of the entire coal chemical product chain; entering the second half of the year, most coal chemical products began to stabilize and show signs of improvement. Judging from market trends in the first and middle weeks of July, due to slow growth in downstream demand, coal chemical products showed mixed price movements, with some seeing increases and others decreases. For example, in the first week of July, crude benzene rose by 7% while refined oil rose by 6%, but in the middle of the month they dropped by 5.5% and 5.6% respectively. Although the frequency of adjustments has increased, the amplitude has narrowed significantly, and overall transaction prices remain on an upward trend. It is unlikely that this situation will improve in the short term; the washout will continue. ”That’s what market analyst Shao Huiwen said. High costs may force production restrictions to maintain prices. According to Xie Kechang, an academician of the Chinese Academy of Engineering, over the years China’s modern coal chemical industry has made significant progress; its overall scale ranks among the highest in the world. The operational standards of the demonstration and production facilities are constantly improving, with a considerable portion of the technologies being at the international advanced or leading level. However, the development of modern coal chemical industry still faces various constraints, such as oil prices and supply, product production capacity and the market, resource allocation and taxation, credit financing and returns, environmental capacity and water usage, as well as greenhouse gases and emission reduction. These external constraints are all important factors that affect the development of China’s coal chemical industry. In particular, adverse factors such as the sudden outbreak of the current pandemic and the complex international environment not only severely hinder the healthy development of the coal chemical industry but also **reduce the industry’s economic resilience to risks. Industry experts say that these external factors unfavorable to the development of the industry will have an amplified effect during this special period this year. In the market, this is reflected in coal chemical products having no price despite being available for sale, stalled transactions, and prolonged periods of adjustment at lower levels. Manufacturing companies, on their part, face the challenge of high costs and low selling prices. From a market perspective, the operation of any product follows market laws. Currently, the pressure of relative oversupply in coal chemical products is becoming increasingly evident; limiting production in order to maintain prices may be a phase that coal chemical companies will have to go through in the coming period, as well as one of the measures to address this issue.