Key points: urea industry will be in the 17 year of spring season showing demand trend, the gap between supply and demand is expected to more than 2 million tons, the superposition light storage delay background, supply and demand gap will continue to expand; due to continuous demand between new, we believe that the market cycle duration is expected to exceed the expected until mid 17.

Long period, coal water slurry technology of urea has strong competitiveness in the world, is expected to fall in the price of coal, natural gas prices continued upward and North American interaction devaluation expectations, we estimate that the manufacturing cost of the future coal urea process in China advanced, and has a high chance of full cost less than in North America gas from urea.
Spreads narrowed, the operating rate will remain sluggish: urea prices 16 years dropped to less than 1200 yuan / ton low, accompanied by raw materials prices, gas prices and rising freight costs, reduce price to the limit, and even the use of advanced technology of the manufacturers is difficult to profit. Although from the beginning of September, the price of urea rebound bottom, but instead of operating rates continue to decline, currently only about 50%. On the one hand, because most manufacturers are still not profitable, manufacturers production will is not strong; on the other hand, middlemen worried about coal downside risk caused by urea prices, light storage stocking will lower, we believe that the downturn will maintain the operating rate.

In the spring of peak demand, middlemen inventory low: about 60% spring season urea demand will reach annual agricultural urea demand (25 million tons), from the beginning of winter wheat turning green fertilizer, continuous demand for new convergence. For the whole year, agricultural urea demand and exports is expected to be slightly under pressure, but in the export tariffs or will be canceled, and promote the rapid growth of demand for urea for industrial use, we believe that the 17 year urea demand will remain stable. Inventory, through grassroots research, at present only half of the middleman inventory in less than 15 years over the same period, the social stock is more intense, and in the high coal price situation, the current stock brokers will still not strong.

The gap between supply and demand will continue to expand, the business cycle is expected to continue until mid 17: after calculation, we believe that in the case of considering inventory, even to return to work capacity (about 75 million tons) from 17 at the beginning of next year’s spring season all production, is still a large probability will form a gap between supply and demand, when urea price rises will exceed the market expected, is expected to exceed 2000 yuan / ton (in the current coal price calculation). We believe that the main reason for this phenomenon lies in the light storage delay performance for November and December is expected to yield fell sharply year-on-year, to stabilize the spring season demand plays a stocking missing, in the subsequent continuous demand convergence under the background of urea cycle is expected to continue until the middle of 17. We judge the current price of coal for 17 years, the price of urea in 1700-1750 yuan central near the actual price will fluctuate based on central.

Investment advice: we believe that the 17 year spring season urea industry supply and demand gap is relatively clear, optimistic about the magnitude and duration of urea prices surpassed market expectations, and priority stocks more flexible, the proposals concern urea industry related targets, elastic order: Yang coal chemical (600691), Hubei (000422), Yihua Hualu-Hengsheng (600426), Luxi Chemical (000830), and proposes a focus on Hong Kong stocks subject Chinese fertiliser (01866).
Risk warning: risk of downstream demand is less than expected; the risk of price fluctuation of agricultural products; the risk of coal and natural gas price volatility

production capacity in 2017, plans to add 5 million 100 thousand tons of methanol production capacity, the growth rate was 6.92%, in 2017 the domestic methanol production capacity is expected to be 78 million 780 thousand tons, 3 million tons of methanol production capacity but which are supporting the downstream device, the actual net amount invested only 2 million 100 thousand tons, so that the overall domestic methanol in 2017 to maintain a low growth rate about supply.

The cost of domestic coal, affected the supply side reforms continued to rise, Shaanxi 5500 kcal coal pit from 165 rose to the highest 485 yuan / ton, methanol cost corresponding to 1213 rose to 2013 yuan / ton, the cost rose as high as 66%, so the current northwest region of coal methanol profits are still in the range of 0-500 shock although, methanol prices rose, but the production profit has not improved significantly, and the high cost of methanol gas head profit is lower, so in 2017 the cost of coal supply side reforms in 2017 will continue, but the government does not want to see higher prices, it is expected that in 2017 Kengkou coal still maintain the current rate of about the level of expected cost basically 2017 coal methanol shocks in the vicinity of 2000, count 400 of the freight, the price of methanol in East China the cost of support in the vicinity of 2400.

The stock of domestic supply, 2016 due to upstream profits and no significant improvement in the overall equipment operation rate is still in the range of 50%-70% shock, if removed long-term parking (of which 4 million tons of methanol gas, head) device to enhance the rate of 5.5%, the overall capacity utilization rate is higher than in previous years the level, which is mainly affected by the olefin demand release in recent years, but 2017 did not increase demand and profit of methanol production of olefins, also no obvious improvement, it is expected that the stock is expected to increase supply, supply growth in 2017 mainly from the whole new capacity.

The import side, because of the domestic supply and demand pattern changes, the growth rate of imports of methanol in 2016 rose 62%, the highest monthly volume of imports reached 926 thousand tons, far higher than the level of previous years, although the overall methanol dependency of less than 20%, but for the East China market of methanol supply, most of the imports, so in 2017 will focus on concerned about the import effect on methanol disk. The 2017 outer new capacity is not much new capacity plan is 3 million 790 thousand tons, and concentrated in the second half of the year, investment is the main origin of the United States and Iran, the highest peak in 2018, concentrated in the United States, so that overall imports in 2017 will remain high, but there will be a substantial increase in may.

The demand side, continued to shrink in 2016 the traditional demand, especially the two ether atrophy is very powerful, the proportion dropped to 31%, the olefin demand accounted for a substantial increase to 45%, in addition to methanol fuel (including methanol gasoline) accounted for 16% of 2017, olefin demand continues to rise, only 400 thousand tons of Changzhou, Jiangsu Sheng Fu Tak rainbow 1 million 200 thousand tons at the end of 2016, although the 2017 launch, and the Saline Lake in Qinghai, Gansu Huating coal and GF total 1 million 400 thousand tons of MTO release, but are supporting the corresponding device with the addition of methanol, methanol fuel oil prices rebound, the demand rate probably rose steadily, thus, the overall demand growth in 2017, olefin demand is not net growth the other hand, the slow growth, so the overall demand will be weakened, also need to pay more attention to the profits of olefin plant of methanol production, the linkage of the two 2017 will be significantly stronger than in previous years.

It is reported that, in accordance with the principle of legislation, environmental tax is a tax shift from the sewage charges “,” translation “to the environmental tax levied on all existing sewage charges and consistent, levied for atmospheric pollutants, water pollutants, solid waste and noise.

Deputy director of the Standing Committee of the NPC Law Committee of the law department Wang Qing introduced, compared to the previous system of sewage charges, there are mainly two different environmental law. One is the provisions of the air pollution and water pollution tax rate. Up to 10 times for each air pollutant pollution equivalent to 1.2-12 yuan, water pollutants for each pollution equivalent to 1.4-14 yuan. The two is based on the reduction to increase a tax relief provisions that taxpayers taxable emissions of air pollutants concentration or water pollutants value is lower than the standard 30%, reducing the environmental protection tax levied by 75%.

Director of the Ministry of Finance Tax Secretary Wang Jianfan said that the current financial system, sewage charges is the implementation of the central and local 1 to 9 into, considering the local governments bear the primary responsibility for pollution control, environmental protection tax will be after all as the local income, no longer participate into the central.

The environmental protection law, will start from the tax lever to make the enterprise more sewage will pay more, less sewage can enjoy tax relief, through the transformation of the construction to promote the adjustment of economic structure and development mode of the green tax system, the formation of effective incentive mechanism, forced corporate emissions.

Environmental monitoring, water sector benefit

Experts believe that the environmental tax for the sewage charges as tax collection efforts greatly strengthened, lower tax revenue will be a substantial increase in environmental protection. Data show that in 2003-2015 years, the total sewage charges 211 billion 599 million yuan, of which 2015 sewage charges levied 17 billion 300 million yuan. According to the Central University of Finance and Economics estimated that the environmental tax levy, expected annual environmental tax levy scale up to 50 billion yuan.

Sealand securities analyst believes that the tax will encourage enterprises to take the initiative to pursue energy-saving emission reduction, increase investment in environmental protection, improve the technical level, the elimination of backward production capacity, to achieve the transformation of economic structure; environmental tax levy will provide adequate funds for investment in environmental protection, but also for environmental governance to provide financial support.

Analysts believe that after the implementation of environmental tax, environmental protection industry will make comprehensive benefit. Among them, the first direct benefit is the environmental monitoring sector, because the tax to the monitoring data, need to install monitoring equipment or the third party monitoring service, test and other leading companies concern; secondly, environmental taxes forced enterprises to control pollution, good industrial wastewater treatment prospects, originwater concern; finally, a large amount of solid waste generated hazardous waste collection, high tax, environmental tax levy solid waste sector is expected to exceed expectations, Jinyuan shares, Dongjiang environmental benefit etc..

But since October this year methanol plant more maintenance, Jiangsu Hengsheng 300 thousand tons, 400 thousand tons, Guodian Shaanxi Shenmu Yinglite 500 thousand tons of methanol plant has parking; another part of low load operation. Device maintenance, low load operation led to tight supply.

On the demand side, an improvement in downstream demand. China’s methanol 10 year apparent consumption was 42 million 643 thousand and 900 tons, an increase of 14.9%. In October China’s methanol production increased 6.9%; apparent consumption grew by 7.5%. An improvement in downstream demand.

Orient Securities Zhao Chen believes that the biggest gap between supply and demand, rising the fastest time is now. But the chemicals rising trend has not ended, the final price will be the most marginal cost line capacity to repair when the balance of supply and demand.

Recommendations concern also at the bottom of the urea industry, with the cost of support, high industry boom can be maintained until next year or the PVC industry , to maintain a moderate recovery of soda industry, and related listed companies.

In the Wall Street informative “2017 global best investment opportunities” annual summit, gf securities Chief macroeconomic analyst Guo Lei said that commodity investments actually change with the entire demand correlation is very high.

Futures market speculation: players will fry God

Methanol futures bullish MA1701 topped 3070 yuan / ton.

At present, most parts of the country due to the early demand caused by the rise of methanol has been completed, some areas have begun callback. But the East China market at full speed up.

In the view of futures daily increase in neither the actual demand, and the peripheral arbitrage all open cases, because methanol paper market exists, provides convenience for duanchao.

But with the Bikong intensifies, market has become a gambler’s playground. The lack of supervision of the paper market, the cost of default is low, there is a lever.

This week the price of potassium chloride market consolidation, the potassium chloride market mainstream offer price at 1930 yuan / ton, and 1930 yuan / ton compared to earlier in the week by 0.16%.

quotations analysis

Product: this week the potassium chloride market to maintain a high level consolidation, the market supply tight but the overall turnover is slow, small. Domestic K, Qinghai shipping problems has not been improved, 60% potassium chloride for the Saline Lake station price at 1920 yuan / ton, Qinghai factory 57% powdery potassium chloride foreign sales agents offer in 1700 yuan / ton. The port supply increased, but large dealers still control the supply, 62% Russian White potash prices in 2030-2050 yuan / ton, the Russian Red quotation at 1880-1920 yuan / ton.

Downstream industry chain: compound fertilizer affected by environmental inspection group, the overall operating rate remained at about 5.5 into the factory, purchasing power shortage, coupled with the terminal market hit by fertilizer Co., so the overall turnover is slow, small.

Industry: the international market as a whole is stable, the market slowdown. Among them, Brazil, Southeast of potassium chloride CIF price steady, respectively 230-240 dollars / ton, $230-260 / ton, the Russian Federal potassium chloride FOB price for the previous week at $189-244 / ton, Canada, Israel and Jordan KCl offshore prices held steady over the previous week, respectively 197-232 dollars / ton, $201-244 / ton 218-243 dollars / ton.

Market forecast

The winter is steadily, the market bullish positive atmosphere. The spot to supply resulting in floor control of large dealers, and transportation. The above price is expected next week for consolidation of potassium chloride.