China'S Refining And Chemical Industry Is Approaching Full Recovery. Local Refineries Enjoy Low Price Bonuses.

In May, China's refining and chemical industry took the lead in recovery. "Our refinery has a load rate of more than 70%." A former private refinery in Shandong said to the twenty-first Century economic report, "the high priced crude oil has basically been digested and the refined crude oil is now purchased at a later stage."

He told reporters that the overall demand of the industry is in the stage of rapid recovery, and the demand for diesel oil has recovered to about 90% of that before the new crown pneumonia. The demand for gasoline has also recovered to six to 70% before the epidemic. He said.

According to the information provided by Zhuo Chuang, the average load rate (crude processing capacity / total production capacity) of the local refineries has reached 73.8%. This figure has not only surpassed the main refineries, but also hit a record high (2011) of the agency, and the theoretical ton oil profit exceeded 520 yuan, which is also far above the pre epidemic level.

"The pace of recovery of China's refining and chemical industry is far ahead of international peers." A central enterprise official told reporters, "on the one hand, China first got rid of the shadow of the epidemic, and the downstream demand recovered the fastest. On the other hand, under the protection of the floor price, the refinery was indirectly stimulated by profits, and also promoted the recovery of the industry."

Rapid recovery of China's refining and chemical industry

Unlike other oil companies, China's national oil companies benefited from strong government support, liquidity and source of capital remained strong. Focusing on refining and petrochemical sector, Sinopec, in September 2019, had more than 200 billion yuan in cash, enough to cope with the crisis brought about by the volatility of oil prices.

Recently, Citibank helped Sinopec successfully complete its fourteenth bond issue in the international bond market in the near future, the global issuance of US $3 billion multi variety bonds, and became a clear signal for the recovery of China's state-owned refining and chemical enterprises.

This bond not only broke the record issued by the Sinopec Group itself, but also issued the lowest yield rate for 10 years in Asia and the rating oil and natural gas enterprises, and it is also the largest Chinese investment grade corporate bond issued since 2020.

"The stock market and the bond market are different. Although Sinopec's share price has dropped to a historical low, the bond market is more based on your credit capability and long-term performance." A bond capital market business person told reporters.

He explained to reporters that although Sinopec's huge losses in the first quarter amounted to nearly 20 billion yuan, the fluctuation of oil prices was a short-term event, because the high inventory in the early stage led to such losses. But in the long run, in the third quarter, the performance of Sinopec, which focuses on the downstream oil chain, will be more stable than that of the upstream enterprises.

According to Sinopec statistics, sales of finished products increased by more than 17% in April this year, of which the volume of diesel retail sales has risen to above the same level last year, and the volume of gasoline retail sales has risen to more than 90%. It is expected that the demand for refined oil consumption will further improve as the pace of domestic resumption of production resumed.

Local refineries enjoy low price oil benefits

From the perspective of local private refineries, the impact of the epidemic has basically been lifted.

From the point of view of load, according to Zhuo Chuang information, the load of local refineries has exceeded 73.8% of the main refineries by 71.28%.

The reason is that the local refinery's inventory level is relatively more flexible. Under normal circumstances, local refineries do not store large quantities of crude oil as the main refineries. The average reserve capacity of local refineries is about 15 days, and the earlier period of high priced crude oil digestion is faster than that of the main refinery.

"When the epidemic is most severe, many private refineries even shut down." Wang Luqing, an information analyst at Zhuo Chuang, told reporters that "after the digestion of high priced crude oil is completed, the rest is basically low price crude oil, which can fully enjoy the dividends brought about by this price."

Compared with the local refineries, the main refineries are not flexible enough. The original maintenance plan has been implemented as usual, so that they haven't recovered quickly in the near future. On the other hand, a large number of stocks in the early stage caused the main refinery to be completely eliminated in the short term and unable to enjoy the benefits brought by low price crude oil in time.

      From the perspective of market demand, the wholesale price of domestic products has not kept pace with the international crude oil prices this year. When the international crude oil price dropped by nearly 80%, the wholesale price of China's refined oil, especially diesel oil, dropped by 20%-30%. The ample profit margins of local refineries have also prompted these refineries to rapidly increase their capacity.

In particular, domestic crude oil has been under the protection of the floor price, and has not been lowered again for five consecutive times as the price of crude oil has dropped. From the consumer's point of view, it has not enjoyed the benefits of low price crude oil. But from the point of view of petrol stations, with sufficient space for price arrangement, the profit margin of theory will be even greater.

"If the ratio is adjusted according to the synchronous ratio, it may also be 3-4 yuan per liter of crude oil, which indirectly affects the local refineries through indirect transmission." The central enterprises told reporters that "the high profit of the gas station has made the trading atmosphere better in the near future and made refineries, especially local refineries, more profitable."

Recently, the Ministry of Commerce formally issued the second batch of private oil import quotas in 2020, which is two months ahead of the end of June and the beginning of July.

"The second batch of quotas has been released for two months in advance. This is unprecedented." Zhou Guoxia, a fuel oil analyst at Jin Lian, told reporters that "under the premise of the second batch of import quotas and the situation of domestic resumption of production and production is relatively optimistic, Chinese refineries will still expand imports during the period of low oil prices."

Demand is rising slowly?