As the price center of chemical products, the weakening of oil prices has a negative impact on most chemical sub-industries. But from the downstream point of view, in the medium term, some demand is expected to be good or stable downward subindustries, such as modified plastics, coatings, auxiliaries and so on. The largest downstream consumption of modified plastics is the home appliance industry and the automotive industry, whose profitability is more sensitive to cost fluctuations. Since the beginning of the year, the price of its main raw materials has continued to fall, and the gross profit margin of modified materials has continued to rise.

The impact of falling oil prices on chemical sub-industries is divided

As the price center of chemical products, the weakening of oil prices has a negative impact on most chemical sub-industries, chemical prices are short-term or under pressure, Huatai Securities research view that, In the medium term, some favorable demand is expected to be good or stable downward subindustries, such as modified plastics, coatings, auxiliaries, etc.

According to public data, as of September 2019, the statistics show that, in general, the basic chemical sub-industries have different year-on-year performance. From the perspective of operating income, the operating income of chlorine-alkali, potash fertilizer, polyester and paint coating plate has reached more than 10% growth, but the compound fertilizer plate has decreased significantly by 24.27%; From the perspective of net profit, potash fertilizer and silicone plate increased significantly by 67.05% and 56.54%, respectively; Nitrogen fertilizer, plastic products and soda ash all fell by more than 50 percent.

Among them, under the background of oil prices falling to a low level and the industry in the downward cycle of prosperity, the prices of plastics (PP, PS, ABS, etc.) and synthetic rubber products are at historic lows. The price decline at the cost end is good for the improvement of the profitability of downstream modified plastics, tires and other industries. On the other hand, modified plastics and tires, as rigid demand products, have their own relatively stable growth demand and maintain a high prosperity.

Modified plastics belong to the petrochemical industry chain of intermediate products, mainly by the five general plastics pe, pp, ps, abs and five engineering plastics pc, pa, pet or pbt, ppo, pom for the plastic matrix processing, with flame retardant, impact resistance, high toughness, easy processing and other characteristics. Modified plastics belong to the typical industries that benefit from technological progress and consumption upgrading.

Modified materials are cost-sensitive sub-industries

Modified plastics downstream the largest consumption and is the home appliance industry and the automotive industry, the combined consumption of the two accounts for more than 50% of the total consumption capacity of modified plastics. According to the statistics, the average use of modified plastics in color TVS, air conditioners, refrigerators and washing machines is between 1.5kg-2.5kg.

In fact, the profitability of modified materials is more sensitive to cost fluctuations. Taking Jinfa Technology (600143) as an example, modified plastic products are the company's main source of profit, since the beginning of the year its main raw materials such as polyolefin resin, polystyrene resin, engineering resin prices continue to fall, the company's gross profit margin continues to rise.

Compared with foreign enterprises, the advantages of Chinese manufacturers lie in low cost, fast market response and excellent service; But the disadvantage is that the industry concentration is low, the scale of individual enterprises is small, and there is still a gap with advanced countries in product quality, research and development ability, management level and so on. Therefore, Chinese manufacturers will be more from the perspective of demand customization, with its flexibility to make up for the competitive disadvantage with multinational companies in the automotive special materials market, penetration to seize the rival market.

In addition, the profitability of modified materials is also affected by downstream demand. For example, automotive modified plastic leading Prete, the company's main products include modified PP, modified ABS, modified PC/ABS, modified PA and other modified composite materials, its products are mainly used in the field of automotive materials. Although the automotive industry boom decline, but the upstream chemical raw material prices fall to release the company's product cost pressure, gross margin ushered in a rebound.

The development budget of the oilfield service industry increased this year

Unlike the downstream modified materials, the performance of the oilfield service industry in the upstream of the petrochemical industry is more certain this year, and the capital expenditure of the industry depends on the change of "oil price - production cost". Sinolink Securities research point of view, if the cost of production decline faster, even if the oil price has fallen, if the profitability of the oilfield service company is still able, oilfield service companies are still willing to increase capital expenditure. In recent years, technological advances have reduced the cost of oil and gas production. At present, the national leadership attaches great importance to ensuring national energy security, and the impact of oil price fluctuations on China's oil and gas exploration and development and China's oil and gas service industry is expected to weaken.

Although the move of Saudi Arabia's oil price war has led to a significant drop in international oil prices, for China, oil and gas development investment is driven by the national energy security strategy and has little relationship with international oil price fluctuations. In 2020, the second year of China's seven-year oil and gas action Plan, China's crude oil production is still short of the 200 million tons red line, and natural gas is also far short of the target. Cnooc announced an exploration and development expenditure budget of 66.3 billion to 74.1 billion yuan in 2020, up 18% to 21% year on year. Both petrochina and Sinopec are expected to see rapid growth in capital expenditure.

In addition, in the upstream oil industry, SanbopU began to increase exploration and production capital expenditure in response to national requirements in the second half of 2018. Judging from the oil and gas production data in 2019, initial results have been achieved. According to the statistics of Yuekai Securities, the cumulative crude oil production from January to November 2019 was 175 million tons, an increase of 1% year-on-year, which was the first time in nearly four years that crude oil production turned to positive growth. In the past five years, crude oil consumption has maintained steady growth, with a compound growth rate of 5.4%. There is still a large gap between the growth rate of crude oil production and the growth rate of consumption. It can be seen that after three barrels of oil have been continuously increased for more than a year, the growth rate of production is still impossible to catch up with the growth rate of consumption, and the dependence on crude oil will still rise.