Currently, the petrochemical industry has a high level of ongoing projects. As the effects of policy stimulus gradually become evident, end consumer demand may see some improvement, but the industry's existing capacity and ongoing capacity will still require time to be digested.
According to the Zhiying Financial APP, China Galaxy Securities published a Research Report stating that the cost side is not the key factor affecting the profitability of the Industry; the crucial factor is the improvement in supply and demand within the industry. Currently, the construction projects in the petrochemical Industry remain at a high level, and as the effects of policy stimulus gradually manifest, terminal Consumption may see some improvement, but it is expected that the existing production capacity and the capacity under construction will still take time to digest. Bullish on structural opportunities in the industry, it is recommended to focus on growth-oriented symbols.
The main viewpoints of China Galaxy Securities are as follows:
In December, oil prices are fluctuating within a narrow range.
As of December 24, the average monthly prices for December Brent and WTI are 72.9 and 69.4 USD/barrel respectively, a decrease of 0.7% and 0.1% respectively compared to the previous month.
On the supply side, on December 5, the OPEC+ meeting announced the extension of the voluntary production cuts of 1.65 million barrels per day, announced in April 2023, until the end of 2025; and the voluntary additional production cuts of 2.2 million barrels per day, announced in November 2023, will also be extended until the end of March 2025. From April 2025 to September 2026, a gradual exit will be made depending on market conditions, with expectations of a recovery in long-term supply.
On the demand side, in the short term, the operating rate of US refineries for the week of December 13 was 91.8%, a decrease of 1.5 percentage points compared to the week at the end of November. In the medium to short term, OPEC has continuously lowered its expectations for global oil demand for five months, and in the latest monthly report on December 11, OPEC reduced its forecasts for global oil demand growth for 2024 and 2025 from 1.82 and 1.54 million barrels per day, respectively, to 1.61 and 1.45 million barrels per day.
As for the inventory side, in the week of December 13, the USA's commercial crude oil inventory was 421.02 million barrels, a decrease of 2.36 million barrels from the end of November. Considering that seasonal inventory accumulation expectations still exist, it is anticipated that there will be significant difficulty in further inventory reduction in the future. It is believed that unless there is an extreme supply disruption on the supply side, the crude oil supply and demand expectations remain relatively weak, with recent Brent crude oil prices running within a range of 70-80 USD/barrel. It is recommended to closely monitor the subsequent OPEC+ production policy, the Federal Reserve's monetary policy, and the evolution of geopolitical situations.
From January to November, China's apparent crude oil demand declined slightly, down 1.0% year-on-year.
From January to November, China's processed crude oil was 0.649 billion tons, a decrease of 1.8% year-on-year; crude oil production was 0.195 billion tons, an increase of 1.9% year-on-year; crude oil imports were 0.506 billion tons, a decrease of 1.9% year-on-year; apparent crude oil consumption was 0.699 billion tons, a decrease of 1.0% year-on-year; the degree of external dependence was 72.3%, remaining at a high level.
From January to November, China's apparent natural gas demand saw substantial growth, up 9.4% year-on-year.
From January to November, China's apparent natural gas consumption was 385.1 billion cubic meters, an increase of 9.4% year-on-year; production was 224.6 billion cubic meters, an increase of 7.1% year-on-year; imported natural gas was 166.1 billion cubic meters, an increase of 12.2% year-on-year; the degree of external dependence was 43.1%.
From January to November, China's apparent demand for refined oil declined slightly, down 1.0% year-on-year.
From January to November, China's refined oil production was 0.385 billion tons, a decrease of 2.0% year-on-year; refined oil exports were 34.7 million tons, a decrease of 11.0% year-on-year; apparent refined oil consumption was 0.351 billion tons, a decrease of 1.0% year-on-year; apparent consumption of gasoline, kerosene, and diesel changed year-on-year by 1.3%, 8.9%, and -4.3%, respectively. Notably, in November, domestic gasoline supply increased, and with the rebound of export profits, gasoline exports rose by 88.1% month-on-month.
Investment recommendation:
It is expected that the Brent oil price will be running in the range of 70-80 USD per barrel in the near term, with the cost side not being the key factor affecting the profitability of the Industry; the critical aspect is the improvement in supply and demand in the Industry. Currently, the petrochemical Industry has a high level of ongoing projects, and as the effects of policy stimulation gradually become apparent, terminal Consumer demand may see some improvement. However, it is expected that the existing production capacity and ongoing capacity in the Industry will still need time to digest. There is a Bullish outlook on structural opportunities in the Industry, and it is recommended to focus on growth attribute symbols, with recommendations including Ningxia Baofeng Energy Group (600989.SH), Satellite Chemical (002648.SZ), and Qingdao Gon Technology (002768.SZ).
Risk warnings: the risk of significant increases in raw material prices, the risk of downstream demand not meeting expectations, the risk of declining prosperity of main products, and the risk of projects not reaching expected production levels.
