① Since 2024, Shenzhen, Chengdu, Fuzhou and other places have issued gas price adjustment plans for residential pipelines, and domestic pipeline gas sales prices have all increased. ② Industry insiders said that this is related to the implementation of the gas smooth price mechanism, and the gross profit space of urban combustion companies is expected to be repaired.
Finance Association, April 14 (Reporter Xiao Lianghua) According to a notice from the Putian Municipal Development and Reform Commission, the sales price of pipeline gas for residential users will be adjusted starting April 15. Furthermore, according to statistics from the Financial Federation reporter, since 2024, Shenzhen, Chengdu, Fuzhou and other places have announced gas price adjustment plans for residential pipelines, and sales prices for residential pipeline gas have all increased.
Industry insiders said that the centralized adjustment of gas prices for residents is related to the fact that many provinces and cities have issued price linkage mechanism documents or price adjustment notices, and that after the implementation of the gas smooth price mechanism, the revenue of urban fuel companies is expected to increase, and gross profit margins will be repaired to a certain extent.
Natural gas prices have risen in many places
On April 11, the Financial Services Association reporter called Shenzhen Gas (601139.SH), Chengdu Gas (603053.SH) and other urban fuel companies as an investor and learned that the sales prices of pipeline gas for residents where the companies are located have all increased. “On March 22, we adjusted the price. The gas prices for users in the six urban districts of Chengdu that implement residential gas prices were uniformly raised by 0.16 yuan/cubic meter.” The relevant person in charge of gas in Chengdu said. Similarly, the staff of the Shenzhen Gas Securities Department said that the sales price of pipeline gas in Shenzhen is adjusted upward by 0.31 yuan/cubic meter, and the company's gross profit margin is expected to improve.
This wave of price adjustments by urban fuel companies is related to the implementation of a gas smooth price mechanism. According to Tianfeng Securities statistics, as of April 2024, price linkage mechanism documents or price adjustment notices have been issued, involving 125 municipal and county administrative units.
According to industry insiders, after the implementation of the gas smooth price mechanism, urban combustion companies will adjust gas prices without going through a hearing process; it will be relatively easy. “It's a bit like the price adjustment mechanism for refined oil products. However, the gas price adjustment frequency is not that high; it may be adjusted once a year.” A relevant person in charge of an urban fuel company told the Financial Federation reporter.
The Zhenjiang Municipal Development and Reform Commission specifically explained the gas price linkage procedure in the gas price adjustment notice: “When the conditions stipulated in the linkage mechanism are met, Zhenjiang Huarun Gas Company submits an application to the municipal price department, reviewed by the municipal price department, and then implemented after approval by the municipal price department.”
Urban Fuel Company Maori Hope Remediation
How much did Urban Fuel Company's revenue increase after the gas price increase? Taking Shenzhen Gas as an example, a reporter from the Financial Federation estimates that in 2023, Shenzhen Gas will sell 1.24 billion square meters of urban fuel in Shenzhen alone. Based on a price increase of 0.31 yuan per cubic meter, the company is expected to increase revenue by nearly 400 million yuan. In addition, the company sold 2.09 billion square meters of urban fuel in regions other than Shenzhen in 2023. If prices also had to be raised, the company's revenue would increase even more.
In terms of gas in Chengdu, the company's sales volume in 2022 was 1.65 billion cubic meters, of which 7 became residential users. Based on the price adjustment of 0.16 yuan per cubic meter of household gas, the company's annual revenue could increase by nearly 200 million yuan.
Some analysts pointed out that under the influence of factors such as high natural gas prices compounded by urban fuel companies' poor smooth prices, urban combustion companies are all facing a certain amount of profit pressure. In the future, if more places actively promote natural gas price promotion, and the procurement price of gas sources stabilizes or declines, it is expected that the profitability of urban combustion companies will recover.
Take Shenzhen Gas as an example. If you check the financial report, you can see that the company's gross margin was around 20% from 2019 to 2021, and only about 15% from 2022 to 2023.
In response, the above industry insiders said that on the market side, the implementation of a favorable price mechanism is expected to stabilize the gross profit space of urban fuel companies. However, on the raw materials side, urban combustion companies mostly use long-term cooperative procurement, which accounts for a very small proportion of temporary purchases. The recent decline in liquefied natural gas prices has limited benefits for urban fuel companies.
The Shanghai Steel Union predicts that in April, when heating is over, the supply of pipeline gas will once again be sufficient. Domestic supply is conservatively estimated to increase by 7 million m3/day, and supply will continue to increase; as far as demand is concerned, demand for urban combustion will decline after heating ends, while demand in the LNG industry is difficult to increase under the suppression of pipeline gas, and demand for gas stations is relatively stable. Therefore, demand for LNG is expected to drop slightly in April. In addition, natural gas costs are also expected to decline, and the LNG market will continue to decline. The price reduction range is expected to be between 3,600 and 3,800 yuan/ton.