U.S. WTI crude oil May futures closed down $0.25, or 0.42%, at $59.98 a barrel on Thursday (March 21). Brent Crude Oil May Futures closed down $0.64, or 0.93%, at $67.86 a barrel on Thursday. The strong rebound of the dollar after yesterday’s sharp fall has increased pressure on oil price recovery, and market expectations that Iran’s crude oil import exemption may be extended, which has also put some pressure on the positive impact of OPEC’s production cuts. WTI crude oil futures in the United States hit the lowest of 59.66 U.S. dollars per barrel, Brent crude oil futures prices hit the lowest of 67.69 U.S. dollars per barrel.

Fundamental positive factors:

The U.S. Energy Information Agency (EIA) reported Wednesday (March 20) that U.S. crude oil stocks had fallen by 9.589 million barrels to 439.5 million barrels in the week ending March 15, the largest weekly decline since July 13, 2018 (36 weeks), with the market forecast increasing by 309,000 barrels. More data showed that Kuxin crude oil stocks in Oklahoma fell 468,000 barrels last week, falling for two consecutive weeks. U.S. refinery stocks fell by 4.127 million barrels, the biggest one-week decline since the week of December 21, 2018 (13 weeks), with a market forecast of 1.094 million barrels. U.S. gasoline inventories fell by 4.587 million barrels, down for five consecutive weeks, with a market forecast of 2.414 million barrels.

In a recent interview, Saudi Energy Minister Falkh said that the process of rebalancing the crude oil market is far from over and that there should be no oversupply in the crude oil market. At the same time, it pointed out that the oil market could not achieve balance in the first half of this year, but crude oil stocks are expected to decrease by May. It also said that crude oil will not be in an unguided state in the second half of 2019. This makes the market more confident that the reduction will be extended to the end of this year, thus providing effective support for oil prices. In addition, Falkh hinted that OPEC + could reduce production by more than 1.2 million barrels per day, pointing out that only one member country currently overfulfills the task of reducing production every month, namely Saudi Arabia itself, but he did not think that Saudi Arabia would always bear such a heavy responsibility alone. This seems to mean that countries such as Russia have to attach greater responsibility, and the Russian energy minister has responded positively to this, but said it is difficult to reduce production too early for the time being due to seasonal factors in winter.

Data released by Baker Hughes on Friday (March 15) showed that the number of active oil drilling wells in the United States had dropped by 1 to 833 in the week ending March 15, the fourth consecutive week of decline, the first time since May 2016, when it had declined for eight consecutive weeks. At present, the number of active oil drilling wells in the United States has reached the lowest level since April 2018, which was 800 in the same period last year. More data show that the total number of active oil and gas drillings in the United States fell by 1 to 1026 by the week ending March 15.

Fundamental bearish factors:

In the U.S. market, bulls suddenly launched a counter-offensive, the dollar index accelerated near 50 points to 96.63 in the short term, erasing the decline after the Federal Reserve resolution, out of the U-shaped reversal market. Some analysts believe that the trend of the dollar is similar to that of the euro after the last ECB meeting, and the market reaction may be overdone. As the dollar continued to rebound, Sterling plunged more than 100 points to 1.3003 in the short term.

Iran’s crude oil import exemption expires in May, and there is widespread expectation that President Trump will extend the exemption, even though he has been claiming plans to cut Iran’s crude oil exports to zero. Market analysts believe that if countries’import exemptions can be extended, it will inevitably weaken the positive impact of production cuts to a certain extent, thus limiting the rise in oil prices.

The U.S. Energy Information Agency (EIA) reported Wednesday (March 20) that domestic crude oil production increased by 100,000 barrels to 12.1 million barrels a day last week, returning to a record high as of March 15.

Uncertainties in the Sino-US trade negotiations still constrain the space for oil price rebound. Foreign media reported that the Sino-US Leaders’talks will not be held this month, but at the earliest, they will wait until early April. The talks are expected to reach a final trade agreement. In addition, signs of a global economic slowdown are increasing, fearing to drag down the performance of crude oil demand. According to data released by the National Bureau of Statistics, in January-February 2019, the value-added of industries above the scale increased by 5.3% year-on-year, which was lower than expected, while creating the slowest growth rate since the beginning of 2002. According to estimates, excluding the influence of Spring Festival factors increased by 6.1%. From a ring-to-ring perspective, in February, the value added of industries above scale increased by 0.43% over the previous month.

After the recent ECB policy meeting, President Draghi pointed out that the European economy was experiencing “a period of sustained weakness and general uncertainty”. In February, the growth of non-farm employment in the United States almost stagnated, with only a slight increase of 20,000. Analysts believe that the long closure of the government has a significant impact on this. Meanwhile, there are signs of slowdown in the economies of Europe, the United States and Asia, which makes the market worried about the performance of crude oil demand.

Propylene prices fell sharply in March and fluctuated more than expected. While the price of propylene has changed dramatically, the prices and profits of many downstream products are also constantly changing, and there are many consistencies and differences with propylene. Overall, the correlation between propylene and downstream products is still strong, and the supply and demand side is still the main factor affecting the propylene market in the later stage. The propylene market will be stabilized in the short term, and the price fluctuation space will be significantly reduced.

In March, the propylene market was very busy, with market prices falling sharply at first and then rising sharply. The mainstream price of propylene in Shandong Province dropped from 7600 yuan/ton in late February to 6400 yuan/ton, a drop of 15.8%, while the current price has risen to 7300 yuan/ton, an increase of 14.1%. Recently, the market has entered a stable period, and the mainstream price of propylene in Shandong has stabilized at 7200-7300 yuan/ton.

There are many downstream products of propylene, and there is a strong correlation between propylene and many downstream market changes. Propylene prices soared and plunged in March, so what is the downstream market trend?

In March, the downstream of propylene showed a high-opening and low-going trend, and the prices of most products have declined by different margins compared with the beginning of the month. The main reason is that on the one hand, the supply and demand of different products are different. On the other hand, the sharp change of raw material propylene price also leads to the continuous change of downstream product cost, which has a greater impact on the market trend.

From the point of view of specific products, only acrylonitrile prices in downstream products have increased since the beginning of the month, mainly supported by the overhaul of the outer disk and marine power plant. The prices of other downstream products have fallen, of which epichlorohydrin and acetone have fallen relatively large, mainly due to the contradiction between supply and demand.

It is difficult to see the correlation between propylene and downstream price changes. Compared with the downstream, propylene price changes frequently and quickly. In about half a month, propylene has experienced a sharp fall, a sharp rise and a stable price, while most downstream prices change relatively slowly.

From the monthly average, the average price of propylene in March was 7.84% lower than that in February, and the price center continued to move downward. Among the downstream products, the average price of acrylonitrile and octanol in March was higher than that in February, while the prices of other products declined by different ranges.

From the monthly average price comparison, it can reflect the correlation between the price changes of propylene and downstream products. Propylene price center of gravity declined, downstream product cost support weakened, price center of gravity also fell. Although sometimes downstream product price changes will lag behind, but the market remains consistent. However, downstream product prices fell less than propylene, which also reflects the weaker propylene market.

Judging from the downstream profit situation, up to March, the downstream still maintains a large profit margin, and most downstream products’profits have risen by different margins compared with February.

As we mentioned above, the average price of most downstream products in March has declined by different margins compared with February, but the profit margin has increased. This shows that the main reason for the expansion of profit margin of downstream products lies in the large drop in cost, i.e. the large drop in the gravity center of propylene price, which is verified by the previous analysis. This indicates that the profit of propylene industry is transferred from propylene downstream in the near future, and the direction of transfer may change in the later period.

Outlook for the future

After a sharp decline and rise, the propylene market has stabilized in the near future, and the price center of gravity has returned to a relatively reasonable space. However, the recent market of some downstream products is relatively weak, and the price focus has continued to decline. This reflects the trend of price recovery between propylene and downstream, with some downstream profit margins narrowing expectations.

In the later stage, the supply and demand side is still the most important factor affecting propylene, which needs continuous and close attention. On the supply side, the spring overhaul season has been gradually opened, and some refineries in Shandong have entered the overhaul; on the outside side, some equipment in Japan, Korea and other places are also expected to be in stock for overhaul, and the supply of the outside will gradually decline. Reduced supply will boost the market mentality and substantially reduce the supply pressure of enterprises. On the demand side, downstream demand needs to continue to recover. The impact of the continued decline in polypropylene futures and spot prices on the stock and profit margins of the propylene market, and some downstream maintenance facilities need to be restored. Overall, propylene market pressure is expected to ease in the later period, but the range is limited. As far as the current situation is concerned, the mainstream price of propylene in Shandong Province is relatively reasonable between 7000-7500 yuan/ton. There will be no sharp rise or fall in the market in the short term, and stable consolidation will be the mainstream trend.

According to media reports, since the beginning of 2019, the price of disperse dyes has come to an end, and related products have witnessed two rounds of increases on January 1 and February 12. Recently, the transaction of disperse dyes has been gradually active, and a new round of increase was welcomed on March 18.

At present, the dyestuff demand peak season has come, dyestuff demand of printing and dyeing enterprises will increase, and this year, the stock of printing and dyeing enterprises and distributors before the Spring Festival has decreased compared with previous years, which will further increase dyestuff rigidity demand of printing and dyeing enterprises. It is expected that the factory price of disperse dyes will continue to rise in the first half of this year, and the performance of industry companies is expected to improve. Relevant companies include Zhejiang Longsheng, Runtu Shares, Jihua Group, etc.

Last weekend, Dow Chemical, the silicone giant, announced an overall increase in the prices of siloxane, polymers, sealants and silicone rubber, up to 10%, with the new price coming into effect on April 1. Other silicone manufacturers and traders, such as Xinyue, Wake, KCC and Maitu, have been following up the price increase, ranging from 5% to 10%.

Institutional data show that in the first week of March, the domestic silicone market transaction price increased by about 300 yuan/ton. Last week, the transaction price continued to rise by 500 yuan/ton.

Wake Chemicals is responsible for organosilicon business executives told reporters that organosilicon prices have risen all the way since the Spring Festival this year, especially upstream, with different varieties, with an average increase of 10% to 15%.

According to the analysis, the price increase of silicone originates from the rising downstream start-up rate and considerable stock reserve. It is said that the stock of many large downstream factories has been increased to the end of March, resulting in compact single factories row orders, low inventory, organic silicon intermediate DMC quotation continued to pull up.

Baichuan information data show that since March, the start-up rate of domestic organosilicon monomer device 3 has gradually increased, and at present, the start-up rate of domestic devices has been maintained at more than 80%. As of March 14, the total production capacity of single unit units in 14 major domestic monomer production enterprises was about 3.035 million tons.

“At present, the monomer enterprises start work normally, but the inventory is still at a low level. With the active downstream orders, the peak season of superimposed demand is gradually coming, and the price probability of silicone continues to rise. Yang Owen, an analyst at Chuancai Securities, said.

The downstream of silicone industry chain also transfers cost pressure through price increase. Following the price increase letter issued by silica gel enterprises at the end of February, only half a month later, some silica gel enterprises issued another price increase letter last week, announcing the price increase of their products.

“With the construction and other industries start to improve, the downstream products of silicone entered the peak demand season in March.” Pu Qiang, an analyst at the Resource and Environment Research Center of Guojin Securities (600109), believes that after a rapid decline in the previous period, the price of silicone products has fallen to a historic low. At present, downstream enterprises have a good desire for low-price purchasing, and the demand for purchasing has also rebounded. The industry is in a state of booming supply and demand. The overall price of products has rebounded, and the profit margin of enterprises has been restored.

“At present, the enterprises are fully started, the market is booming both in supply and demand, the inventory is at a low level, and the downstream orders are in good condition.” Li Wenjing, an analyst at Open Source Securities, predicts that the market will continue to warm up as the peak demand season approaches.

Analysis of Coal Transport Railway and Port Operation around Bohai Sea

Last year, 2.38 billion tons of coal were transported by national railways, an increase of 10.3%. Among them, the Daqin Line completed 451 million tons of cargo, Shuohuang Line completed 316 million tons of cargo, Mongolia-Hebei Line completed 54.05 million tons, Wari Line completed 33.95 million tons, all increased year on year.

This year, China’s economic construction continues to develop rapidly, urbanization is speeding up, electricity consumption of the tertiary industry and residents is expected to maintain growth momentum, and coal demand remains growth momentum. This year, it is expected that the Daqin Line will deliver 455 million tons of goods, the Shuohuang Line will complete 32-330 million tons of goods and the Mengji Line will complete 7-80 million tons of goods.

Looking back last year, the Da-Qin line completed 451 million tons of cargo, of which 401 million tons were flowing to the Bohai Rim Port and the rest to the Beijing-Tianjin-Hebei Power Plant. In sub-ports, the Daqin line flows to 203 million tons of coal in Qinhuangdao Port, 123 million tons in Jingtang Port and 74.29 million tons in Caofeidian Port.

Last year, Guotou Jingtang Port completed its coal throughput of 5.39 million tons, mainly relying on the Daqin-Cao Railway Line, all of which come from the Daqin Railway. The total coal throughput of Beijing-Tang Laogang is 32.14 million tons. It mainly relies on the Daqin-Qiancao-Luangang Railway Line, and the gathering ports are all from Daqin Line. The 36-40 Luan berth in Jingtang Port has a coal throughput of 40.81 million tons. It mainly relies on the Daqin-Qiancao-Luangang Railway Line, and the gathering ports are all from the Daqin Line.

Last year, CITIC completed 71.3 million tons of coal throughput in Caofeidian Port, 34.39 million tons in the second phase of Caofeidian Coal and 22.65 million tons in Huaneng Caofeidian Port. The above coal resources come from 74.29 million tons of Daqin line and 54.05 million tons of Mengji line.

Last year, the Shuohuang Railway completed 316 million tons of freight traffic, an increase of 2.7% over the same period last year; the annual coal traffic exceeded 300 million tons for the first time. Coal mainly flows to Huanghua Port and Tianjin Nanjiang Coal Terminal, and part of it flows to the power plants along the line. Last year, Huanghua Port completed coal throughput of 203 million tons, while Shuohuang-Huangwan Line formed a supply support for Tianjin Shenhua Coal Terminal. Last year, Tianjin Shenhua Coal Terminal completed coal throughput of 45.1 million tons.

This year, the planned shipment volume of Daqin Line is 455 million tons. Affected by the competition between Mongolia-Hebei Line and Shuohuang Line, part of Inner Mongolia’s resources flow to Mengji and Shuohuang Line, resulting in increased market competition pressure. In addition, the construction of Qinhuangdao Port, the supporting port of Daqin Line, without follow-up coal terminal in Hong Kong, has limited the annual coal shipment volume of Qinhuangdao Port to 18-210 million tons, and the possibility of a substantial increase is very low. In the next few years, the annual traffic volume of Daqin Railway will remain basically 450 million tons, with little room for increment.

This year, the volume of goods shipped on the Shuohuang Line is expected to be limited compared with last year, reaching 320-330 million tons. The throughput of its supporting port, Huanghua Port, has increased slightly from last year. This year, the coal throughput of Huanghua Port and Shenhua Coal Terminal in Tianjin is expected to reach 21.1 million tons and 45 million tons respectively.

This year, the increment of the Mengji Railway Line is between 2000 and 30 million tons, and its supporting ports, Caofeidian Port III, are relatively abundant in transport capacity; the designed transport capacity of the three ports is 200 million tons, and the coal throughput of the three ports completed last year is 125.34 million tons, and the throughput will continue to increase.