In 2023, due to the decline in the prices of crude oil, natural gas and other energy sources and the vast majority of petrochemical products, China's petroleum and chemical industry as a whole increased production and sales without increasing profits, with total operating income falling by 1.1% year-on-year to 15.95 trillion yuan, and total profit falling by 20.7% year-on-year to 873.36 billion yuan.
In this context, Hengli Petrochemical (600346. SH), Hengyi Petrochemical (000703. SZ), Rongsheng Petrochemical (002493. SZ), Dongfang Shenghong (000301. SZ) has recently handed over its 2023 report card, and the net profit attributable to the parent company of the four companies in 2023 will exceed 9.2 billion yuan.
The advantages of refining and chemical integration projects are gradually emerging
Among the four major private refining and chemical enterprises, Hengli Petrochemical ranked first with a net profit increase of 6.9 billion yuan and a net profit increase of nearly 198% year-on-year. In 2023, the gross profit margin of the company's refining and chemical products will reach 18.53%, an increase of 3.2 percentage points year-on-year, and the gross profit margin of PTA and polyester products will increase by 5.13 and 1.33 percentage points respectively, which will also contribute nearly half of the company's operating income, an increase of 10% compared with its contribution to revenue in 2022. In addition, the company's three major new material projects, including an annual production capacity of 440 million square meters of lithium battery separators, were gradually put into operation during the year, which also restored its profitability.
Rongsheng Petrochemical ranked second with a net profit of 1.158 billion yuan. However, the company was the only one of the four major refining and chemical companies with a decline in net profit, a decline of 65.33%. Rongsheng Petrochemical said that the dual factors of sluggish market demand and geopolitical spillover effects after the epidemic have put pressure on its earnings. In addition, high oil prices narrowed the price spread of refined and chemical products, and the increase in R&D investment also pushed up the company's expense ratio during the period. In 2023, Rongsheng Petrochemical's R&D investment will increase by 50.11% year-on-year to 6.555 billion yuan.
Dongfang Shenghong and Hengyi Petrochemical will achieve net profit attributable to the parent company of 720 million yuan and 435 million yuan respectively in 2023.
Among them, the 16 million tons/year Shenghong refining and chemical integration project of Shenghong Refining & Chemical (Lianyungang) Co., Ltd., a subsidiary of Oriental Shenghong, will fully release its production capacity for the first time in 2023, and basically achieve full capacity operation in the second half of the year, and has now been fully put into operation. The company said that the production, operation and production and sales of the project were good, which boosted its revenue scale in the first three quarters to exceed 100 billion yuan, achieving a "historic breakthrough" in revenue scale. Combined with production data, affected by the full operation of the project, the total output of petrochemical and new chemical materials products of Dongfang Shenghong last year was about 15.7 million tons, and the total sales volume was about 19.17 million tons, and the production and sales volume exceeded 10 million tons for the first time.
It is worth noting that Hengyi Petrochemical, as one of the few refining and chemical projects located overseas, saw a year-on-year increase of 140.34% in net profit last year, second only to Hengli Petrochemical. In 2023, Hengyi Petrochemical will actively improve the technology of the Brunei Phase I refining and chemical project, an overseas project with the largest single investment among private enterprises, and optimize the product structure. Due to the limited investment of new refining and chemical capacity in Southeast Asian countries last year and the gap of refined oil products, with the recovery of the industry's prosperity, Hengyi Petrochemical's performance has increased significantly. The company said that after the completion of the second phase of the Brunei project, the advantages of refining and chemical integration will be further revealed, and in addition, the company's Brunei refining and chemical project is expected to benefit significantly as the supply and demand of petrochemicals in Southeast Asian countries will continue to be tight in the future.
In 2012, Hengyi Petrochemical established Hengyi Brunei through equity acquisition, and planned to build a refining and chemical integration project on Brunei Darussalam's Greater Mora Island. In November 2019, Hengyi Petrochemical said that the first phase of its Brunei project had been fully operational. In the second half of 2020, the company announced that it intends to start the second phase of the Brunei project, with a construction period of three years and an estimated investment of about US$13.7 billion.
How refiners are responding to oil price shocks
Crude oil prices are highly correlated with the prices of chemical products, and all four companies pointed out in their annual reports the negative impact of the decline in oil and gas prices on the company's performance last year.
The first financial reporter noted that in order to avoid sharp fluctuations in oil prices, several private refining and chemical enterprises continue to carry out futures hedging business, and the margin amount invested in the business in 2024 is disclosed to range from 3.5 billion yuan to 8 billion yuan, and the trading varieties involve crude oil, naphtha, PTA, ethylene glycol and other commodities related to the company's production and operation.
"As a commodity buyer and producer, the company will face the impact of changes in shipping schedules and downstream demand in the process of raw material price fluctuations, and there is a risk of spot exposure, so it is very necessary to manage risk through futures hedging. Hengli Petrochemical said that according to the scale of production capacity, the company is expected to carry out futures hedging business with no more than 8 billion yuan of its own funds in 2024.
In addition, these large refiners have also strengthened cooperation with upstream global crude suppliers such as Saudi Aramco to lock in crude oil supply. For instance, in September 2023, Oriental Shenghong signed a framework agreement with Aramco Asia, a subsidiary of Saudi Aramco, to introduce it as a strategic investor of the company to cooperate in the long-term procurement and supply of crude oil and other raw materials, the sales of chemical products and fuel products, and the licensing of high value-added technologies. On the evening of April 22 this year, Hengli Petrochemical and Rongsheng Petrochemical officially announced the latest cooperation with Saudi Aramco. At that time, an oil and gas industry analyst told the first financial reporter, "The significance of Saudi Arabia's 'buying a circle' of China's refining and chemical industry is to lock in long-term crude oil supply in advance." ”
It is worth noting that with the intensification of competition, the signs of overcapacity in the chemical industry are gradually emerging, and it may be more difficult for enterprises to make profits.
Sun Weishan, vice president of the China Petroleum and Chemical Industry Federation (hereinafter referred to as the "Petrochemical Federation"), introduced at the 2024 Petrochemical Industry Development Conference that in 2021, the industry's prices and benefits will reach the best level in history, stimulating enthusiasm for capacity expansion, and a large number of projects such as ethylene, propylene, PX, PTA, polycarbonate, lithium iron phosphate, and acetic acid will be built. With the huge investment in bulk basic raw materials and low-end chemicals, and the concentrated release of production capacity, the industrial structural contradictions have intensified, the supply and demand imbalance of some products has been staged, and the capacity utilization rate of overcapacity products has continued to be low.
In this regard, Fu Xiangsheng, vice president of the Petrochemical Federation, suggested that the industry should vigorously enhance its scientific and technological innovation capabilities, aiming at five key areas such as new energy, new materials, new environmental protection, new life sciences and high-end specialty chemicals, and concentrate resources and investment.
The first financial reporter noticed that the above-mentioned private refining and chemical enterprises all said in their annual reports that strengthening the extension of products to high-end fields and improving the production capacity of high-end fine chemicals, downstream new energy and new material products are the key directions of their plans this year. In addition, Hengyi Petrochemical also said that it will actively respond to the "Belt and Road" initiative, accelerate the process of internationalization, seize the development opportunities of the Southeast Asian market, and continue to enhance profitability.
(This article is from Yicai)