In the first half of the year, the industry economy faces four major problems. The chemical market trend in the second half of the year is not optimistic
In the first half of this year, China's petroleum and chemical industries maintained a positive development trend in terms of production, sales, pricing, imports, exports, and overall economic performance. However, despite these improvements, several challenges remain, affecting the stability and sustainability of the sector. These issues can be summarized into four key areas:
First, there is a tight supply of oil products. Throughout the first five months of the year, China experienced a shortage in its oil market, particularly in the southern regions. Crude oil imports reached 61.548 million tons, reflecting a 17.7% increase compared to the same period last year. Although this situation has slightly improved from the previous quarter, the strategic importance of crude oil in the national economy means that this issue demands serious attention. The government raised oil prices twice in March and May, aiming to improve energy efficiency and curb demand, but the overall supply gap remains largely unchanged.
With the ongoing development of rural areas under the new socialist countryside initiative, agricultural production is expected to grow, making agriculture a new major energy consumer. This rising demand could become a significant driver for increased oil consumption. To address this, it is essential to consider multiple factors, develop energy policies aligned with China’s economic growth, increase oil reserves, optimize transportation, strengthen market regulation, adjust export volumes, and establish early warning systems to ensure stable oil supply in the second half of the year.
Second, the pesticide industry faced mixed results. While production and sales remained strong during the off-season, export performance was disappointing. From January to May, pesticide exports totaled 185,000 tons, up 8.1% year-on-year, but export value dropped by 21.8%. This decline is attributed to several factors: the ban on highly toxic pesticides starting in 2007, trade barriers from Europe, the U.S., and Australia, weak brand recognition, intense competition, and exchange rate fluctuations. Specific categories like insecticides and fungicides saw significant declines, while herbicides showed growth. These trends highlight the need for better market strategies and product quality improvements.
Third, natural rubber prices have surged, posing a challenge for the industry. As a critical raw material, China relies heavily on imports due to limited domestic resources. By 2010, domestic output is expected to reach only 750,000 tons, resulting in less than one-third self-sufficiency. This high dependency makes China vulnerable to import price fluctuations. Prices have risen sharply since 2006, with SCR5 and SCR10 reaching 25,250 yuan/ton and 24,250 yuan/ton respectively. Market participants are calling for reduced import tariffs or the resumption of pre-WTO tax rates to ease pressure.
Fourth, overcapacity remains a pressing issue. With improved efficiency in the chemical industry, many projects have been launched, especially in resource-rich central and western regions. These projects often overlap, leading to excess production capacity in sectors such as "two alkalis," calcium carbide, pesticides, urea, paints, and dyes. This overbuilding is exacerbated by lack of coordination between regions, blind investment, and environmental concerns. To address this, structural adjustments, pollution control, and the promotion of a circular economy are crucial.
In addition, other problems persist, including losses in the refining sector, shortages of phosphorus fertilizers, and excessive sulfuric acid production at low prices.
Looking ahead, while oil and chemical production will continue to grow rapidly, downstream demand may not keep pace, potentially leading to lower sales compared to 2005. Rising costs in energy, raw materials, and transportation will also push industry-wide expenses higher, especially in a supply-driven market with weak price support. Therefore, the outlook for chemical product prices remains uncertain.
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