Crude oil prices soared 14.7% the previous day and plunged 5.7% the following day. The crude oil market has opened a pattern of sharp rise and fall. How about the chemical industry downstream? On September 20, the Styrene Futures Contract and related rules were officially announced. As an important chemical product downstream of crude oil, the styrene market is undoubtedly facing tremendous fluctuation risk.
China is the largest styrene producer and consumer in the world. The large fluctuation of upstream price makes the situation of domestic styrene industry chain more severe, the profit of production enterprises declines, and the profit space of industry chain is compressed. It coincides with the upcoming listing of styrene, the 70th derivative product in China’s derivatives market on September 25. With questions, the Securities Times interviewed relevant styrene production and trading enterprises to understand the specific situation.
The fluctuation risk of chemical industry is increasing, and the average amplitude of styrene is more than 50%.
China is the largest styrene producer and consumer in the world. In 2018, there were 45 styrene production enterprises in China, with annual capacity of 9.26 million tons and output of 7.68 million tons, accounting for about 25% of the world.
“The fluctuation of crude oil price will drive the change of downstream styrene price.” Zhu Shunlin, general manager of Lishde Chemical Industry in Jiangsu Province, said that the price fluctuations of styrene in recent years were very obvious. From 2015 to 2018, the price fluctuations of styrene market were 68.4%, 55.7%, 48.8% and 66.7% respectively. Taking 2017 and 2018 as examples, the price difference between high and low points of styrene in 2017 is nearly 4000 yuan/ton, and that in 2018 is more than 6000 yuan/ton.
Zhu Shunlin admitted that the impact of crude oil fluctuations on the styrene industry is huge, most typical in 2008 and 2014. Crude oil prices plunged from $147 to more than $30 in 2008, causing many chemical companies to shut down production. The same was true in 2014, when crude oil fell sharply, styrene prices fell at the waist and the industry changed dramatically.
In addition to the upstream crude oil price, as a part of the chemical industry in the middle reaches, there are many factors affecting the price of styrene. Not only the upstream crude oil, ethylene, pure benzene and other varieties will be affected from the supply side, but also the downstream demand of EPS, PS and ABS products will have an impact on the price of styrene.
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Especially, after 2019, domestic styrene ushered in a wave of capacity expansion, with more than 500,000 tons newly built, especially 1.2 million tons of Zhejiang Petrochemical Company and 720,000 tons of Hengli Petrochemical Company. From 2019 to 2023, the planned production units reached 2.7 million tons annually, and domestic supply tended to be excessive.
“Over the past four or five years, domestic styrene production capacity has been growing slowly, demand has been growing steadily and steadily, the industry is in a tight balance cycle, and the production enterprises have made high profits.” However, with the average output growth rate of 21% in the past three years, the current situation of the styrene industry chain is becoming more and more serious, the supply-side increment is large, the profits of the production enterprises are declining, and the profit-sharing space of the industry chain is compressed.
Wang Wenlin, futures analyst of Zhejiang Merchants, said that from the perspective of upstream raw materials, crude oil prices fluctuated sharply and the risk of styrene cost-side fluctuated significantly, while the domestic chemical industry, including styrene, put more production capacity into the industry itself, and the supply pressure was high, and the downstream demand slowed down obviously, resulting in the reduction of profits in the entire chemical industry. The demand of producers and traders to lock in prices to avoid risks or optimize industrial profits will be significantly increased.
There is a huge fluctuation space in the styrene market, and contract trading is the main part of spot trade. Once the two parties sign the contract, some traders will suffer heavy losses due to breach of contract. The market urgently needs effective hedging management tools to optimize the operation of the market.
Zhu Shunlin said that the mainstream pricing method of domestic styrene spot is to use Anxun’s quotation as a reference, mainly monthly settlement, mostly RMB quotation. In previous years, the contract price will refer to Jiangsu regional price and CFR China main port price. The data show that the production capacity of East China, such as Jiangsu, Zhejiang and Shanghai, accounts for about 45% of the total production capacity of the whole country, and is the largest area of styrene production in China. In 2018, the regional output exceeded 3 million tons, accounting for more than 40% of the total output of the whole country.
“The acquisition method of Anxun’s quotation, mainly through telephone consultation, market verification and other means, determines the daily quotation, and then calculates the average monthly price through average calculation.” Gu Sumin, manager of Shanghai Secco Petrochemical Business, said. It is understood that the current domestic styrene industry sales mode, basically based on monthly quotation. This is somewhat similar to the Prussian price on the spot iron ore market. Price is also determined by telephone inquiry, market verification and other means of daily quotation.
At the same time, in recent years, the price operation system of Huaxi Village’s electronic disc and paper goods exists in the domestic market of styrene and other chemical products, and many domestic private enterprises have tried to diversify their sales methods to meet the multi-level needs of customers by means of electronic trading and pre-sale products in spot market. Including Shandong Huaxing, Yuhuang Chemical and other enterprise e-commerce platforms have been put into commercial operation successively, selling products through commercial platforms, and even using competitive bidding in commercial platforms, adjusting prices automatically according to market supply and demand.
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The interviewees pointed out that, compared with mature markets such as the United States, China is different in that there are 67 producers with a capacity of 56 million tons in the United States, while there are basically 3 million tons in Korea and Japan, that is, 35 producers. In China, there are about 40 manufacturers in the capacity range from 7 million tons to 9 million tons. In addition, the number of traders in chemical industries such as styrene is even larger.
A large number of market participants also provide rich soil for multi-level price operation. Drawing on the successful experience of other commodity sectors, it is clear that styrene also needs a futures market with large capacity and high credit to provide services for enterprises. “With the listing and operation of ethylene glycol, the customer base of styrene futures will be better, and enterprises involved in ethylene glycol trading have also done styrene.” Zhu Shunlin said.
It is noteworthy that in addition to the above background, styrene futures have been given a new role: styrene futures will be the 70th derivative on the commodity stage of our country, dedicating to the 70th anniversary of the founding of New China. Since the first standardized futures contract, aluminium futures, was listed in 1992, China’s derivatives market has been growing in variety and service areas, covering agriculture, energy, chemical industry, metals and finance, serving the whole chain of risk management and pricing trade from production to sales.
Behind the development of derivatives market is the increasing demand of real enterprises to manage the risk of price fluctuation since the market-oriented reform. “In September 2008, the price of styrene was around 11,000 yuan/ton, and then continued to fall within a month, with a minimum of about 4,800 yuan/ton. At that time, there were not many ways to manage risks, and the awareness of risk prevention and control was limited, so we could only sell the goods. The lower the price of the goods sold, the lower the price of the goods sold. Zhou Jun, deputy general manager of Nantong Chemical Light Industry Company, said frankly.
After the ups and downs of marketization, the real enterprises gradually realized that the management of market risks not only need to improve their management, but also need the help of derivatives. Take the chemical industry as an example, Nantong Chemical Light Industry has participated in methanol and ethylene glycol futures trading before, and is the ethylene glycol futures delivery warehouse, which is more in-depth in the aspect of the combination of futures and cash. Shanghai Secco, Yibin Tianyuan, Ningxia Inliter and other production and processing enterprises also participated in the trade of chemical futures such as LLDPE and PVC very early. Some enterprises’products have also become designated delivery brands of exchanges, playing an active role in the futures spot market.
With styrene futures as a new starting point, the derivatives market will serve the real economy more broadly. “The listing of styrene futures is not only conducive to the stable production of upstream enterprises, but also enables downstream enterprises to have good risk management tools to escort the smooth operation of enterprises. Similar to other chemical futures, it can derive pricing products such as option basis, enrich the means of enterprise sales and procurement, and ultimately serve the real economy. Purpose. ” Zhu Shunlin said.
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