In recent days, news of an explosion at a BASF factory in Germany that killed two BASF employees and hospitalized six others with injuries has spread across China's chemical industry. Many people in the industry, especially the traders send WeChat messages, asked me whether there was a possibility of a big increase in such and such a variety. Many people were concerned about whether they could take advantage of this "rare" news to make a lot of money in the market. You know what? The market prices of many familiar chemical raw materials in China have risen by more than 50 per cent this year, and some have even doubled, with some rising by more than 400 per cent.
At present, the market price of many familiar chemical raw materials in China has gone up too much compared with that in January, equivalent to the price of crude oil at the level of $100. For example, the domestic rutile titanium dioxide was around 9,300 yuan/ton at the beginning of this year, but it has reached as high as 14,000 yuan/ton at present. Neopentyl glycol has risen from 6,000 yuan/ton to 13,800 yuan/ton; TDI is even stronger. Despite domestic overcapacity and little change in year-on-year demand, domestic producers and traders have "made a concerted effort" to boost market prices by more than 4.5 times in just six months, thanks to the suspension of several sets of equipment abroad. This hype completely deviates from the fundamentals.
Before when we were on the analysis of some basic chemical also tend to associate it with the price of crude oil is analyzed: oil prices earlier this year at the time of 35 - $40 a barrel, China propylene market price about 4000 yuan/ton, and now the price of crude oil rose to 45 - $50 a barrel range, but the price of propylene was rushed to the 7000 yuan/tons, gain far more than the price of crude oil increases; The price of epoxypropane shot up by more than 20% in just two weeks, thanks to an inspection by the Ministry of Environmental Protection in Shandong province. There is also the incredible butadiene, which has gone up to 14,000 yuan/ton from 5,300 yuan/ton at the beginning of the year, directly causing the market price of butadiene made of butadiene rubber to reach 18,000 yuan/ton, which is 5000 yuan/ton higher than the price of natural rubber! This is unprecedented in history, in the past 20 years, the natural rubber has always been higher than butadiene rubber 1500-3000 yuan/ton, natural rubber and synthetic rubber prices upside down at least I am the first to see.
Even though we do not think the first 9 months this year China's economy is worse than the same period last year, but compared with a year, the market demand for the vast majority of chemicals and no presents the double-digit growth, but compared with earlier this year, the market price rise more than 50% of the breed a lot, a lot of varieties or double or even more than twice as high as, for example, butadiene rubber, acetone, propylene, butadiene, butadiene rubber, and so on and so on.
As a manufacturing enterprise, no one wants to see the drastic fluctuation of the price of the raw materials they buy, especially the main raw materials, but at the same time, they hope that the higher the price of the products they produce, the better.
There may be several factors contributing to the growing madness of the Chinese chemical market:
1. Too much water drowned the miller.
In the past 20 years, China's chemical industry market has experienced a round of crazy expansion, and many products' production capacity has gone from insufficient supply to severe surplus, which leads to vicious competition with ever-lower prices. Many Chinese enterprises firmly believe that: Just making money, a lot of material of ultra-low prices that afflict, foreign counterparts are forced to shut down or closure, the most typical example is the titanium dioxide, 2006-2010 domestic titanium dioxide prices are lower, let still dominates the global market monopoly enterprises such as dupont furious, was on the verge of losses they are eligible to have the ability to market prices to rise sharply, widening spreads to downstream of the main customers were to switch to the Chinese titanium dioxide, directly led to the fierce expansion in the field of titanium pigment in China since 2010, At present, the market share of international titanium dioxide giants in the world, especially in China, has shrunk by more than half, and the rapid expansion has also led to the market price of Chinese titanium dioxide from 23,000 yuan/ton to 9,000 yuan/ton (still rutile type) since 2012.
I recently with a friend for this thing made a discussion, we found that when a variety of Chinese capacity accounted for more than 35% in the whole world, China is the world's largest market, number of production enterprises and related only in double digits, the Chinese market the price of the product can present typical boom collapsed, titanium dioxide is accord with the characteristics. After "shuffle" the Chinese titanium dioxide enterprises suddenly found that unity is strength, directly pulled open the prelude of prices since January, eight months for a mass of millions of tons of varieties prices rose by more than 60%, of course the following a second factor also indirectly promote the rise in price, that is environmental auditing.
2. Environmental audit
We know that many Chinese chemical expansion is depend on the cost of environmental protection, the impact on the level of environmental protection increasingly strict zhengda chemical production in China, you can literally environmental management and auditing in nearly a year as a direct result of a lot of China's chemical market prices soared, many of the chemicals because of the increase of environmental governance costs rise in price, but does not rule out some manufacturers and dealers to get rich, the most typical example is epoxy propane, we know that China propylene oxide production 50% concentrated in shandong, and the national production enterprises is less than 30, foreign state-owned enterprises and private companies are basically three points, Due to differences in technology, is dominated by foreign production companies using advanced the environmental impact of smaller total oxidation technology, but more and more private companies and some large state-owned enterprises still adopt the environmental impact of emulsifcation of technology, in early September, the central ministry announced sending work to environmental auditing HuaGongDa provinces of shandong, as a direct result of the already very pulling production enterprise crazy pull up, haven't heard of which the main production enterprise production, demand, compared with last year although no drop, also does not have too much growth, but the market price of the ring oxygen propane is soaring.
3. Crazy without a bottom line
The words "crazy without bottom line" can be said to apply to many enterprises in China, the most typical example is TDI.
This year, no one can predict the TDI market prices can go up so high, the manufacturing enterprises are quite related to highly concentrated, Chinese manufacturing enterprises is a digit, they are easy to reach a consensus in the market, the main material in the manufacture of the TDI toluene market price rise this year to less than 20%, the downstream demand for TDI compared with a year although there is no single but will not increase more than 20%, the market price of TDI China just by this help super work of enterprise directly from early 12000 yuan/ton rose to 50000 yuan/ton, When we ask these companies, they all agree that prices are going to go up. Why? With is foreign a few sets of equipment stop production? Do you know that the domestic MARKET price of TDI is at the high level in the world, and the massive increase of export still exists only in legend? Now more and more downstream sponge factories have to stop production, because they can no longer afford to use them. More downstream enterprises are accelerating the evaluation of alternative jobs. Many of China's TDI production enterprises are state-owned enterprises, and all of them are the same in the face of interests. But in my 20 years of experience, foreign companies are not so bottomless in their pursuit of profits.
Through the wild expansion of production capacity and low price competition, will thoroughly beat foreign counterparts, through environmental governance and visible large-handedness levels of the government shut down small and medium-sized chemical companies, directly lead to industry concentration in the next five years, much of the increase year by year grow stronger Chinese enterprises begin to understand a truth, just the low price competition and capacity expansion between peers is can't make money, everybody with the aid of some rare good news to the market price up to make more money, is taste of the production enterprises and traders will inevitably lead to the market price ups and downs, We can be very responsible to use the word "surge" to predict and predict the market price trend of some chemicals in the next 3-5 years. There is nothing in the market that only goes up but never goes down. When it goes up fiercely, it will be the same when it goes down.
For the rest of November and December, I am personally not very optimistic. Apart from the Chinese boom, the global economy is in a slump: the US is actually worse than it looks; The euro zone is suffering because of Britain's demand to leave, Italy's clamour for a vote to leave, and the influx of millions of refugees. Two years sustained downturn in oil prices make once very expensive year oil-producing countries in financial difficulties, even rich in Saudi fiscal deficit, for the world's major oil producers, as many as possible to sell crude oil in exchange for foreign exchange in order to ensure that economic development is their first choice, the so-called OPEC verbally agreed frozen recently made agreements is simply and venture capital market to push oil prices soaring stunt, I don't believe that the world's major oil-producing countries such as Russia, Qatar, Saudi Arabia, Iran and venezuela will be frozen by the requirement to produce (high frozen at? And production cuts, not to mention the production of shale gas in the United States and the development of alternative energy sources in almost every country in the world.
A significant portion of China's crude oil imports in the first three quarters of this year were used for strategic reserves. As the tanks for strategic reserves continue to fill, China's demand for refined oil products must be slowing, as evidenced by the fact that more and more of the refined oil produced in China is being used for heavy exports. Personally, I don't think November and December will be as crazy as the first three quarters. Individuals are bearish on crude oil for the next month and December, and may even see $40 / BBL, reflecting the fact that prices of major raw materials in China for more than half a year may start to fall sharply again. This is the Chinese market! This is a market that can't be explained by almost any economic theory! This market is full of intrigues, full of gambling, for the remaining two months of the fourth quarter prices are likely to go up (dare not predict), you'd better be careful!
