On April 6, 2024, French entrepreneur Arnold Bertrand posted on social media on the 6th that there is currently no sign of China's "overcapacity", which is essentially a Western concern that if China continues to develop, it will far exceed other countries and affect Western interests. This comment reminds us that a lot of things can't be seen only by appearances, and appearances hide a lot more than they show.
At present, there are many analysis articles on China's chemical market, which show us that many products in China have been in surplus, or will be in surplus soon. So is this really the case in China's chemical market? The main metrics used to assess overcapacity are capacity utilization, profit margins and inventory levels. By investigating the market conditions of major bulk chemicals, the following conclusions are reached:
(1) From the perspective of operating rate: The capacity utilization rate of most chemical products in China is low, with an average of 73%
The so-called capacity utilization rate refers to the output/capacity calculation, and 75% is usually used in the industry to evaluate whether there is excess capacity. By investigating the changes in capacity utilization of nearly 30 bulk chemicals over the past seven years, they obtained the chart below.
As shown in the figure, we can draw the following conclusions: First, in the past 7 years, for most of the chemicals in the survey scope, the excess scale of 75% has become the average dividing line, that is, half is above 75% and half is below 75%. In other words, about half of the chemical products surveyed in China have an annual average operating rate of less than 75%. Second, according to the average operating rate of the past seven years, the average is 73%, lower than the industry standard value of 75%. Third, the chemicals located below 75% are mostly chemicals relatively close to the raw material end of the industrial chain, such as methanol, alkylated oil, MTBE, etc. These products, which exist with the properties of the expansion of the scale of raw materials, belong to passive capacity reduction. Fourth, the chemicals above 75% are mostly raw material properties or products at the lower end of the industrial chain, such as ethylene, polyethylene, propylene oxide, etc. These products are affected by the industry boom, and the operating rate has remained high in the past few years.
In particular, it should be noted that because the statistical capacity is the actual capacity, not the effective capacity, it is necessary to remove the perennial parking and may never drive the device, most of these devices are concentrated in the product maturity and development time is long, and has a low technical threshold attributes. If these zombie capacity are removed, the operating rate of some products will be higher than 75%, such as styrene, pure benzene, synthetic ammonia, oil refining and others.
There is an indisputable fact that in recent years, China's chemical products to be built a large number of projects, a large number of new capacity, and frequent technological iterations, resulting in the growth of zombie capacity. From the surface of the data, the overall operating rate is low, but under the general trend of China's overall elimination of backward production capacity, the overall chemical market is still in a relatively prosperous development status.
(2) Profit rate perspective: In 2023, most chemical products have profits, and a small number of products have losses
According to the industry mainstream formula, according to the average processing cost and the market mainstream price, the profit rate of about 100 chemical products in 2023 is calculated, and the calculated profit rate is the average profit rate of the industry, which does not represent the enterprise situation.
According to the calculation results, the following conclusions can be obtained:
First, most of the products of China's chemical industry in 2023 are still in a profitable state, and only a small number of products have theoretical losses. Among them, the number of loss-making products accounted for 37%, and the number of profitable products accounted for 63%. It can be seen that from the perspective of theoretical profitability, most products of China's chemical industry are generally good.
Second, among the profitable chemical products, 39% of the chemical products have a profit margin of less than 10%, which is a small profit state. Since this calculation is the average profit rate of the industry, which does not include financial costs, depreciation and management expenses, so in a strict sense, if the profit rate is lower than 10%, there may be a certain risk of loss, especially if the profit rate is lower than 5%, if the enterprise is a new device, there is a high probability of loss.
Third, through the profit margin level of nearly 100 chemical products in 2023, the highest profit margin has not exceeded 40%, and the largest loss profit margin exceeds 20%. The statistics are bulk chemicals, and there are no profiteering products in the statistics, which shows that the profitability of bulk chemicals in 2023 is limited, and the profitability is not as good as that of new materials and fine chemicals.
Therefore, we believe that China's chemical industry from the perspective of profit margins, most chemicals are still in a profitable state, and can not fully reflect the signs of excess.
(3) Inventory level perspective: inventory capacity is limited, and inventory levels cannot reflect signs of excess
According to the investigation of the main inventory situation in China, chemical products as a special product for storage, there is a big difference with the storage of daily necessities, and the storage capacity determines the inventory level of chemical products. Chemical inventory exists in storage yards, warehouses, spherical tanks, liquid tanks and other storage facilities, most of which are controlled by the size of the chemical storage environment and the size of the storage capacity, so if you want to deliberately enlarge the inventory, it is almost impossible to achieve in a short time.
In addition, the trade environment transaction volume of chemical products is huge, of which the trade volume of most products accounts for 50% and more of the total volume, and the trade environment is more to reflect the prediction of the future market trend, so many traders have the phenomenon of inventory gambling, which also insubtly increases the level of inventory, thus reflecting the illusion of high market inventory.
Therefore, we believe that reflecting the surplus of the chemical market through the inventory level cannot truly reflect the actual situation, so this indicator cannot be used as an indicator to evaluate the surplus.
Through the comprehensive judgment of the two indicators of capacity utilization rate and profit rate, combined with the current actual situation and historical situation of bulk chemicals, it can be concluded that there is no large-scale surplus situation in China's chemical market, and China's chemical market is still developing in a healthy state. However, it should also be noted that due to the large number of projects under construction in China, and the backward production capacity cannot be quickly eliminated, there may be some products and negative expectations in the future in a short period of time, or it will lead to a weak market in the chemical market.
