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Business News Agency: The off-season is not dull; improved supply and demand drive the alcohol ether market upward. http://www.100ppi.com/forecast/detail-20161206-114260.html http://www.100ppi.com December 6, 2016, 08:20:23 Business News Agency (Li Wenjing) Report from Business News Agency, December 6 Energy industry index chart According to Business News Agency’s energy index, the value was 714 points on November 30, which represents a 31.54% drop from the highest level of 1043 points recorded on March 29, 2012; it also represents a 39.73% increase compared to the lowest point of 511 points on March 1, 2016. (Note: The period refers to from 2011-12-01 to the present); the energy index continued to reach new highs for the year. Overall in November, it rose significantly by 36 points from 678 at the beginning of the month, and also saw a strong increase of 26.82% compared to the same period last year. In November, energy products saw more increases than decreases in prices. According to the price monitoring by Business News, among the commodities whose prices changed in November, 17 items in the energy sector experienced upward price changes on a month-on-month basis, while 7 items saw downward changes; the average percentage change for this month was 3.85%, which is 2.97% lower than in October, but 6.66% higher compared to the same period last year. Li Wenjing, a senior analyst at the Energy Division of Business Society, noted that the energy market continued its upward trend from the previous month in November, with a milder winter climate. The overall trend was characterized by weaker prices for oil and stronger prices for coal. There were two main factors contributing to this phenomenon: first, at 24:00 on November 16, the retail prices of gasoline and diesel saw the largest drop of the year, at around 345 yuan per ton; as a result, the prices of refined oil products also decreased. Additionally, with the deadline for upgrading to National V gasoline approaching, refineries accelerated their efforts to clear inventory. At the same time, the colder weather led to weak demand from end-users. As a consequence, the oil product industry experienced varying degrees of decline ； Secondly, with the introduction of the new policy allowing \"all legal and compliant coal mines that meet safety requirements to operate for 330 working days before the end of the heating season,\" and under the continuous pressure from various measures aimed at curbing rising coal prices and keeping them at high levels, a price correction has become the consensus among companies involved in the production, trading, and consumption of thermal coal. As for coking coal and coke, the market supply is currently tight; steel mills are seeing improved profits, and there is strong enthusiasm among downstream users to restock. Affected by this, the trends of coal and coking products in black colors varied; among them, coke led the rise in the energy sector, while coking coal came in third. Although thermal coal saw a rise of 1.07%, it has already begun to show signs of a decline. OPEC’s historic agreement to cut production drove up crude oil prices sharply. Looking at crude oil in the upstream market, WTI crude oil futures prices rose by 9.31% in November, while Brent crude oil futures prices increased by 9.55%. On the evening of November 30, a black swan event occurred in the crude oil market: while most people were skeptical about an output freeze agreement, OPEC unexpectedly reached an agreement to cut production for the first time in eight years, by approximately 1.2 million barrels per day. Driven by this development, the price of Brent crude rose by 10.40% before closing, reaching a high of $52.24 per barrel – the highest level since October 20 of this year. The gain in WTI prices widened to 10.10% toward the end of the session, pushing prices to a high of $49.82 per barrel – the highest level since October 27 this year. At the close, the gains for Brent crude and WTI narrowed slightly, to 8.82% and 9.31% respectively. Regarding gasoline and diesel: After falling in November, their prices remained volatile, with declines of 3.70% and 1.92% respectively. There are three reasons for this: First, crude oil futures in Europe and the United States dropped six times in a row during this pricing period. As a result, at 24:00 on November 16, the retail prices of gasoline and diesel saw the largest drop of the year, at around 345 yuan per ton; consequently, the prices of refined oil products in the market also decreased ； Secondly, the deadline for upgrading to National V gasoline is approaching, which has accelerated refineries’ efforts to clear their inventories. At the same time, as temperatures continue to drop, demand from end-users remains weak, leading to a decline in gasoline prices ； Thirdly, the supply of 0# diesel was tight in the early period, causing diesel prices to soar by nearly 17%. In November, diesel prices declined as weather turned colder and demand for diesel in industries, mining, and infrastructure projects started to drop. Market demand is “strong,” driving sharp increases in liquefied gas and liquefied natural gas. In terms of liquefied gas, prices rose by 5.04% this month, ranking seventh among the highest increases in energy prices. On the one hand, in November, the CP (CP refers to the Saudi contract price). Since Saudi Arabia accounts for about 1/4 of the world’s total LPG exports, many **prices related to regional LPG exports are determined using Saudi Arabia’s CP as a reference for pricing. Propane and butane saw increases of $50 per ton and $70 per ton respectively compared to the previous month, reaching $390 per ton and $440 per ton. The rise in CP in November was higher than expected, which boosted demand from downstream users. In terms of imports, it is estimated that imports in November will be around 1.45 million tons ； On the other hand, temperatures continued to drop in November, entering a peak period for demand for domestic liquefied gas; at the same time, the sharp rise in CP prices in November also stimulated some speculative demand, resulting in strong overall demand during that month. Regarding liquefied natural gas: prices of liquefied natural gas rose by 8.33% this month, ranking fifth among the highest increases in energy prices. Most areas of our country were affected by cold air in November, leading to an increased demand for natural gas in downstream consumer markets, with many places setting new consumption records since the onset of winter. LNG prices have risen steadily driven by demand; although they dropped temporarily due to an overly rapid increase in prices and transportation disruptions caused by snow and rain, the overall trend remains upward. Furthermore, **policy measures issued during the month to advance price reforms, along with CNPC’s increase in the price of natural gas for non-residential use, all contributed to higher prices for liquefied natural gas. The off-season is not a period of weakness; improving supply and demand conditions support a steady upward trend in the alcohol-ether market. As for methanol, its monthly increase was 4.78%, placing it ninth on the list of substances with the highest price increases among energy sources. Domestic methanol prices reached their highest levels in two years; supported by high production costs, prices remained high across various regions, despite being in an off-season. However, the increase in methanol prices this month was significantly lower than that in October (+17.99). On the positive side, as environmental inspections have intensified, some manufacturers in North and Central China have reduced production or even stopped operations, leading to a decrease in supply. Coupled with a reduction in shipments from the Northwest to the interior areas and rising freight costs, there is once again a shortage of methanol, keeping its prices stable ； On the negative side, November is traditionally a slow season for methanol, with reduced purchasing activity by some downstream users. Additionally, cold and foggy weather in various regions increases the difficulties and costs associated with transporting methanol. On the downstream dimethyl ether side, the strength of methanol (+4.78%) and liquefied gas (+5.04%) contributed to an upward trend in the dimethyl ether market (+5.88%). Dimethyl ether prices remained on an upward trajectory, but there was little enthusiasm for purchases on the part of end-users; market activity was moderate, with the market operation rate dropping to around 14.5%. The persistently high cost of methanol continues to put significant pressure on the profits of dimethyl ether; in some areas, the price of dimethyl ether has now exceeded that of liquefied gas, putting enormous sales pressure on companies, and there is little incentive for further price increases. A series of policies aimed at curbing rapid increases in coal prices have led to divergent trends among coal and coking product prices. This month, there was variation in the performance of black-metal related coal and coking products: coking coal (+20.83%) and metallurgical coal (+13.06%) continued to show strong performance, with their prices reaching new annual highs, and also hitting five-year and four-year highs respectively. Although thermal coal saw an overall increase of 1.07% this month, it has since shown a downward trend. There are four reasons for the recent decline in the price of thermal coal. First, **a range of targeted measures and strategies have been introduced, including increasing production and boosting transportation volumes; as the effects of these measures become apparent, they gradually exert pressure on the currently high prices of coal** ； Secondly, the two major state-owned coal enterprises have successively signed medium- to long-term contracts for thermal coal with the five major power companies. The base price for 5500 kcal thermal coal at the ports in the Bohai Sea region is 535 yuan per ton; even after adjustments based on relevant principles, this price remains significantly lower than the current market price of coal, thereby helping to prevent excessive increases in coal prices ； Third, large coal companies have successively reduced some prices of spot thermal coal. In late November, the five major companies – Shenhua, China Coal, Tongmei, Yitai, and Mengtai – all reduced the spot prices of thermal coal by around 5 yuan per ton. The spot price for Q5500 thermal coal was set at 680 yuan per ton ； Fourth, electricity generation has increased while port inventories have risen, with downstream power plant inventories remaining at relatively high levels. As of November 25, the coal inventory at Qinhuangdao Port was 6.18 million tons, representing a 43% increase compared to the previous month – an impressive rise. The total inventory at the six major power plants along the coast was 12.357 million tons, with a slight increase in inventory levels on a month-on-month basis. From January to October 2016, thermal power generation by power plants above a certain scale across the country amounted to 3,586.8 billion kWh, representing a year-on-year increase of 1.8%, with the growth rate being 4.4 percentage points higher than in the same period of the previous year. Li Wenjing, a senior analyst at the Energy Division of Business Society, noted that the energy market saw a significant upward trend in November, which is consistent with the China Commodity Supply and Demand Index BCI released by the commodity data provider Business Society (which stood at 0.71, with an overall increase of 6.78%), indicating that the manufacturing sector was in an expansionary phase that month, with a clear upward trend in economic activity. Liu Xintian, an analyst at Business Society, noted that the BCI in November reached its highest level ever, with a average change of 6.78%, which also set a new historical high. It is no exaggeration to say that the performance of commodities in November can only be described as \"crazy\". Liu Xintian analyzed that although it is a structural bull market, the price bubbles in commodities are now evident; such disorderly and excessive price increases do more harm than good to the economy, making it necessary to bring these \"crazy bull markets\" under control. Li Wenjing, a senior analyst at the Energy Division of Business Society, said that looking ahead, first and foremost regarding international crude oil, OPEC unexpectedly reached an agreement on production cuts for the first time in eight years. The 14 major OPEC oil-producing countries agreed to reduce their daily oil output by 1.2 million barrels, a reduction that is greater than what most people had predicted. This could lead to a shortage of crude oil globally, possibly pushing oil prices up to $53 to $56 per barrel. Liu Xintian, editor-in-chief of Business Society, believes that this rise in crude oil prices could push the price ceiling for crude oil this year to 55 dollars per barrel. According to the latest data provided by the China Commodity Development Research Center (CDRC), the crude oil CCI (Commodity Confidence Index) was 0.32 in December 2016, while the FPI (Commodity Future Prices Index) was 5.38, indicating that a majority of market participants are optimistic about the trend of crude oil prices in December ； Secondly, regarding black-colored coal and coke products, **multiple measures are being taken to control coal prices: production is being increased first, followed by an increase in transportation capacity. At the same time, large coal companies are asked to take the lead in stabilizing prices. Thanks to this combination of policies aimed at curbing rapid rises in coal prices, along with market mechanisms for self-regulation, the currently high levels of coal prices are being brought under control. It is expected that the supply and demand situation in the coal market will improve further in the future, with little possibility of sharp price fluctuations; instead, moderate adjustments will be the dominant trend throughout the end of the year ； Once again, in terms of the alcohol-ether market, upstream coal currently provides significant support for methanol prices. Although it is the traditional off-season for this industry, some downstream sectors still enjoy decent profits, which keeps demand for methanol steady. Moreover, increasing environmental regulations in various regions further restrict supply growth, so there is no likelihood of a sharp drop in prices in the short term. Additionally, the sharp rise in international crude oil prices at the end of November has greatly boosted the confidence of industry players. It is expected that methanol prices will remain high and fluctuate in the short term, with an average price of around 2,490 yuan per ton. Overall, the energy market looks optimistic for December, with a trend that may be high at the beginning and lower towards the end; the peak for the energy index is expected to be at 745 points, while the low point will be at 725 points. (Article source: Business News Agency, Author: Li Wenjing)