Event
Since the outbreak of COVID-19, oil prices have continued to plummet, March 6, 2020 In the evening, Brent crude oil and U.S. oil both continued to plummet 9% due to the failure of the OPEC+ production reduction meeting to reach any agreement and the last round of production reduction agreement is about to expire. U.S. oil closed at $41.57/barrel, approaching $40, and Brent crude oil closed at $45.50/barrel. The closing price hit a new low since 2017.
Comments
The price difference of the large refining and chemical industry chain is “deadly carried” by three extremely rare pessimistic scenarios The superposition does not decrease, but expands against the trend: When the production and sales of various products in the large refining and chemical industry chain are extremely sluggish and the inventory reaches a new high, the price difference (gross profit at the time) of the industry chain does not narrow, but expands, which is expected to alleviate inventory Short-term losses caused by falling prices. What we need to mention in particular is that the current scenario is a substantial expansion of capacity on the supply side (large refining and chemicals have been put into full production of about 50 million tons, PX has been put into production about 10 million tons, and PTA has been put into production in the past 4 months close to 5 million tons), superimposed Demand has plummeted (China-U.S. trade frictions and COVID-19 have caused domestic demand to be almost interrupted, production and sales are at historically low levels, and inventories have increased significantly), as well as extremely rare pessimistic scenarios such as the collapse of oil prices occurring at the same time. The price gap in the large refining and chemical industry chain is “deadly hanging on”. ” has not fallen, and has maintained it for more than 4 months and has rebounded against the trend, indicating that the “iron bottom” range of the industrial chain price difference has fully withstood the test. Considering that the growth rate of the supply side of the industry has declined significantly since then, and the cyclical demand has gradually recovered after the epidemic (China, which represents 70% of demand, is recovering rapidly, and overseas, which represents 30% of demand, will not exceed the previous 70% of China’s demand even if there is a problem. The impact of a sudden cliff-like interruption), the bottom of the long-term price difference in the refining and chemical industry has been verified, subsequent volume and price will rise, and long-term profits can be expected to continue to rise.
The floor price of the oil refining industry will now appear: the bottom of the price difference profit of the oil refining industry appeared in January, and gasoline prices impacted the cost of crude oil. As crude oil continues to decline, the profits of gasoline and diesel have fallen by a relatively small margin, thus widening the price gap between refined oil and crude oil. The “floor price” of US$40/barrel in the refined oil price adjustment mechanism of the National Development and Reform Commission may reappear, and the profits of refining units below the floor price will see a sharp reversal.
Inventory losses: We believe that periodic inventory losses are inevitable and are also the core drag factor on the short-term performance of refining and chemical companies in the first quarter. However, looking at the timeline, as oil prices stabilize, In the event of a rebound, inventory losses and inventory gains will eventually offset each other, and the impact on annualized profits will be weak. Historically, the filament-crude oil qualitative price difference of large refineries has basically nothing to do with oil price fluctuations.
Investment recommendations
Maintain the industry “buy” rating
Risk warning
Macro policy impact
The new crown epidemic in my country/Southeast Asia continues The time is much longer than expected
Global economic recession
Recurrence of Sino-US trade friction
Other force majeure
1. The epidemic has driven the plunge in oil prices to verify the “iron bottom” in the price differentials of major refining and chemical products
The 178th (Special) Plenary Meeting of the Organization of the Petroleum Exporting Countries (OPEC) was held on March 6, 2020. . At this OPEC+ ministerial meeting, no agreement was reached on extending production cuts or increasing the scale of production cuts to offset the impact of the epidemic. This means that the last round of production reduction agreement expired after April 1, 2020, and no agreement has been reached on the new round of production reduction. This news caused a sharp drop in global oil prices that day, with Brent crude oil falling 8.98% to close at US$45.50 per barrel. NYMEX crude oil fell 9.43% to close at $41.57 per barrel.
When my country’s demand was affected by the Sino-US trade friction in the second half of 2019, a typical industry profit compression phenomenon occurred. The price of Brent crude oil continues to rise, while the price increase of major chemicals is less than that of crude oil, leading to a downward trend in the industry and continued narrowing of profits.
In 2020, crude oil was affected by the epidemic and fell sharply. During the period, the prices of major downstream chemical products bucked the trend and remained relatively strong. As a result, the price of crude oil fell, while the profits of major products gradually recovered. pattern. We believe that as China takes the lead in getting rid of the impact of domestic demand caused by the new crown epidemic, the profit elasticity of China Refinery and Chemicals will significantly exceed expectations!
2. Crude oil plummeted, and the price difference (gross profit at this time) of the entire aromatics-polyester industry chain bucked the trend and got off the bottom, showing growth
During the collapse of crude oil since the beginning of 2020, the price of Brent oil It fell from $66.34 to $45.50, a drop of 31.4%. The price of polyester POY150D fell from 7,100 yuan to 6,600 yuan, a decrease of only 7.1%, which drove the overall profit of filament-crude oil upward. In the figure below, we sum up the profits of the three links of crude oil-PX-PTAPOY filament and compare them with oil prices. We find that although oil prices continue to fall, the overall profits of the polyester industry chain are improving.
Chart 1: Total crude oil gross profit
Source: WIND, China Gold Securities Research Institute
The formula used is the sum of POY-crude oil gross profit =PX-crude oil, PTA-PX, POY-PTA gross profit of the three links
2020 will be the year with the largest investment in PTA production capacity in history. It is not difficult to see from Chart 4 that the PTAPX spread has been continuously suppressed by expectations of the largest production year in history, hovering near the cost.
Chart 2: PTA investment in 2020Amplitude situation.
Since the second half of 2019, large refining and chemical plants have experienced a significant expansion of production on the supply side. The demand side has been affected by Sino-US trade frictions and the outbreak of the new crown epidemic, which have affected overall demand and other sudden extreme events. However, overall profits can remain stable and positive, which is seriously lacking in expectations in the current market. Although in the short term, large private refining and chemical companies are facing short-term performance pressure caused by falling inventory prices, as China leads the world in overcoming the COVID-19 epidemic, domestic demand in my country is the first to pick up, and large private refining and chemical companies will be the first to usher in volume and price. The rising profit turning point is in the upward stage.
Risk Warning
The impact of macro policies on the petrochemical industry is Asset-heavy industries that are highly relevant to macro policies. Macroeconomic policies have a greater impact on the pricing mechanism of refined oil products, tax policies have a greater impact on asset-heavy industries, and fiscal policies have a significantly higher impact on asset-heavy industries than on asset-light industries.
The duration of the COVID-19 epidemic in my country/Southeast Asia has been significantly longer than expected. The COVID-19 epidemic will have varying degrees of impact on the transportation industry and the textile and clothing industry. my country was the first country to have the COVID-19 outbreak and is expected to be the first to control the epidemic, thus giving priority to boosting domestic demand growth. If the epidemic continues to recur in my country, there is a risk that demand will continue to be weak.
Global economic recession There is a significant correlation between our country’s economy and the global economy. The global economic recession will weaken foreign trade demand and thus have an impact on the petrochemical industry.
There are still uncertainties in the future of Sino-US relations due to repeated trade frictions between China and the United States. If Sino-US trade friction continues to recur, it will have a certain impact on the downstream demand of the domestic petrochemical industry and the import of crude oil/light hydrocarbons.
Other force majeure
Explanation of the company’s investment rating:
Buy: Expect an increase of more than 15% in the next 6-12 months;
Overweight: Expect an increase of 5% in the next 6-12 months %-15%;
Neutral: The expected change range is -5%-5% in the next 6-12 months;
Reduce holdings: It is expected that the decline will be more than 5% in the next 6-12 months.
Explanation of industry investment ratings:
Buy: Expected future Within 3-6 months, the industry will rise more than the market by more than 15%;
Overweight: It is expected that in the next 3-6 months, the industry will rise by more than 5% more than the market. -15%;
Neutral: The industry is expected to change at -5%-5% relative to the broader market in the next 3-6 months;
Reduce holdings: The industry is expected to fall by more than 5% more than the market in the next 3-6 months. </p
