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Since the beginning of this year, the A-share market has fallen sharply. As of now (July 11), the Shanghai Composite Index fell by 16.01%; the Shenzhen Composite Index fell by as much as 18.27%.
However, in the context of a sharp drop in the index, the share prices of chemical companies have barely fallen, and some have even risen. Year-to-date (July 11), Luxi Chemical's share price rose by 12.22%; Hualu Hengsheng rose by 20.29%; Hengli shares rose by 20.84%...
Why are chemical companies' stock prices so resistant and even rising sharply?
Chemical companies' performance is improving: Luxi Chemical's net profit has doubled
Recently, Luxi Chemical released a performance forecast. In the first half of 2018, the company's net profit was 1.68 billion - 1.73 billion, compared with 551 million in the same period last year, soaring 205% -214%.
Not only Luxi Chemical, Yuntianhua’s performance forecast also shows that in the first half of this year, the company’s profit was about 65 million, compared with a loss of 344 million in the same period last year. In addition, Hualu Hengsheng expects that as of the end of June 2018, the company's net profit was 1.646 billion to 1.696 billion, a year-on-year increase of 202% -211%.
In fact, the performance of chemical companies showed a good trend last year. Take Luxi Chemical as an example. In that year, the company's total revenue was 15.762 billion, a year-on-year increase of 43.96%, net profit was 1.95 billion, a year-on-year surge of 671.95%; net profit also hit a record high.
It is worth noting that in 2016, Luxi Chemical's performance was still in a downturn; in the year, the company not only saw a decline in net profit, but also a rare decline in revenue. In fact, in 2016, the chemical industry as a whole was in a downturn.
Why did the situation reverse after just one year?
The prices of chemical products have risen sharply, and environmental protection and production have become important drivers.
In the announcement of the pre-increased performance, Luxi Chemical said that the chemical industry continued to improve due to the tightening of the national security and environmental protection policies and the rectification of the elimination of small scattered pollution enterprises.
The most important performance of the chemical industry is the rise in the price of chemical products. Take the octanol produced by Luxi Chemical as an example. The latest (July 12) ex-factory price of the company's octanol is 8,650 yuan / ton, compared with the 2016 low, the increase is as high as 80.2%.
The continuous strengthening of environmental protection supervision is an important driving force for the price increase of chemical products. According to the Industrial Securities Research Report, the major provinces producing chemical products are among the key list of environmental protection inspections. Some small and medium-sized enterprises have been shut down due to environmental failures, and supply contraction has pushed up product prices.
Shen Wan Hongyuan Research Report said that in the field of basic chemicals, after the cyclical adjustment of the previous round of industry downturn, the basic chemical products have achieved the cyclical clearing of the current round of production capacity, while the continuous pressure on the environmental protection policy and supply-side reform Continued advancement will result in a significant slowdown in new capacity. The research report believes that in the next three years, the domestic environmental protection policy and capacity reduction will not be relaxed, so the chemical industry's business cycle will remain for a long time.
In fact, the current enterprises that shut down their factories due to environmental protection are still continuing. According to the exclusive report of the Financial Union at the end of June, the General Office of Jiangsu Province issued the Notice of the Provincial Work Plan for the Renovation of Coastal Chemical Industrial Parks (Concentration Areas), which requires all chemical industry in the coastal areas of Nantong, Lianyungang and Yancheng. All chemical production enterprises in the park and the park will be rectified. In addition, Shandong Province plans to retain only 155 chemical parks, and rectify 44 rectifications, and requires chemical companies in key sensitive areas to enter the park before the end of 2018.
Under the pressure of environmental protection, the price of products has risen due to the suppression of chemical products. However, the production of some of the more important products in the chemical industry has also been suppressed, which has led to an increase in imports and external dependence. Taking polycarbonate as an example, polycarbonate (PC) is one of the major chemical products in the mainstream. In 2016, the global consumption was 4.33 million tons. Polycarbonate is widely used in electrical appliances, electronics, automobiles, optics and other fields. However, China's polycarbonate is mainly dependent on imports.
According to the Shenwan Hongyuan Research Report, the consumption of polycarbonate in China in 2017 was about 1.8 million tons, while the output was only 630,000 tons, and the import dependence was as high as 65%. In addition, most of the domestic polycarbonate production is produced by foreign or joint ventures.
Not only polycarbonate, but another important chemical raw material, China is also extremely dependent on imports. Para-xylene, also known as PX, is one of the most important raw materials in chemical production. At present, China is the largest consumer of PX. However, due to various reasons, China's PX production has been slow to achieve self-sufficiency. Taking 2017 as an example, the demand for PX in China reached 28.5 million tons this year, but the output was only 10.2 million tons. In this context, China has to import a large number of PXs. In 2017, the import volume was 14 million tons, up 13.26% year-on-year.
What is more noteworthy is that PX's external dependence has increased. In 2011, PX's external dependence was 43%. In 2017, this figure rose to 58%.
Driven by the tangible hand of environmental protection and production restrictions, the performance of the domestic chemical industry is rising. However, the dependence of core chemical products on imports has cast a shadow over the development of China's chemical industry.