China's Petrochemical Producers Face Narrowing Profit Margins Amid Rising Natural Gas Prices

Strategic Insights -

Beijing is bracing for a challenging second half of the year as China's top price regulator, the National Development and Reform Commission (NDRC), has announced a 24.9% hike in domestic onshore natural gas prices. This move is expected to further erode profit margins for chemical producers, particularly those relying on natural gas as a feedstock. Despite this, the chemical producers seem unlikely to pass on the increased costs to consumers due to the current bleak demand. Meanwhile, the oil price slump in May has led to a decline in prices for about 80% of the 100 main petrochemical products monitored in China, according to ChemNet.com.cn.

Key Takeaways:

  • China's chemical producers are facing narrowing profit margins due to the recent 24.9% hike in domestic onshore natural gas prices.
  • Producers of urea, methanol, and ammonium nitrate with natural gas as feedstock are likely to see a reduction in profit margins by 13-17% for urea production, 17% for methanol producers, and 8-9% for ammonium nitrate production.
  • The Shanghai and Shenzhen listed companies anticipated to be affected by the price hike include Sichuan Meifeng Chemical Industry, Cangzhou Dahua, Sichuan Chemical Co. Ltd., and Yunnan Yuntianhua.
  • Petcoke, coal, and other fossil fuels will continue to be in demand as natural gas price hike increases costs for chemical companies with natural gas as feedstock.
  • Industry observers predict a bleak petrochemical market in June, with prices hinging on the trend in oil prices.
  • Companies with coal as feedstock, such as Shandong Hualu-Hengsheng Chemical, Luxi Chemical Group, and Hubei Yihua Chemical Industry, may see a favorable effect from the natural gas price hike.

Statistics:

  • The domestic onshore natural gas producer benchmark price was raised by 0.23 yuan (US$0.03)/cubic meter, a 24.9% increase on average.
  • The price hike is estimated to reduce profit margins by 13-17% for urea production, 17% for methanol producers, and 8-9% for ammonium nitrate production.
  • About 80% of the 100 main petrochemical products monitored in China saw their prices decline in May over the previous month due to the decline of oil prices.
  • The oil price slump in May led to a 0.31 yuan cubic meter decrease in gas price.

Sources:

  • Asia Pulse, "China's Chemical Producers Face Narrowing Profit Margins Amid Rising Natural Gas Prices" (June 7)
  • SWS Research, "Report on the Impact of Natural Gas Price Hike on Petrochemical Producers" (no date)
  • ChemNet.com.cn, "China's Petrochemical Market to Continue Being Bleak in June" (no date)
  • XIC, "China's Petrochemical Market to Face Challenges Amid Rising Natural Gas Prices" (no date)