B2B Internet for Chemical products

Gazprom Neft (hereinafter referred to as "Gazprom") on September 2 claimed that due to the discovery of numerous equipment failures, the Nord Stream-1 gas pipeline will be completely shut down until the failures are resolved. Nord Stream-1 is one of the most important natural gas supply pipelines in Europe. The daily supply of 33 million cubic meters of natural gas to Europe is important for the use of European gas residents and chemical production. As a result of this, European gas futures recently closed at record highs, which led to a dramatic impact on global energy prices.

Over the past year, European natural gas prices have risen significantly due to the Russian-Ukrainian conflict, increasing from a low of $5-6 per million British thermal to over $90 per million British thermal, an increase of 1,536%. Chinese natural gas prices also increased significantly due to this event, with the Chinese LNG spot market, spot market prices increasing from $16/MMBtu to $55/MMBtu, also an increase of more than 244%.

Europe-China natural gas price trend in the last 1 year (unit: USD/MMBtu)

Natural gas is of great importance to Europe. In addition to the natural gas used in daily life in Europe, chemical production, industrial production, and power generation all require supplemental natural gas. More than 40% of the raw materials used in chemical production in Europe come from natural gas, and 33% of the energy used in chemical production processes also depends on natural gas. Therefore, European chemical industry is highly dependent on natural gas, which is among the highest fossil energy sources. One can imagine what the supply of natural gas means for the European chemical industry.

According to the European Chemical Industry Council (CEFIC), European chemical sales in 2020 will be €628 billion (€500 billion in the EU and €128 billion in the rest of Europe), second only to China as the most important chemical production area in the world. Europe has many international giant chemical companies, the world's largest chemical company BASF, located in Europe and Germany, as well as Shell, Inglis, Dow Chemical, Basel, ExxonMobil, Linde, France Air Liquide and other world-renowned leading companies.

Europe's chemical industry in the global chemical industry

Energy shortage will seriously affect the normal production operation of the European chemical industry chain, raise the production cost of European chemical products, and indirectly bring huge potential risks to the global chemical industry.

1. The continuous increase of European natural gas price will increase the transaction cost, which will lead to a liquidity crisis and directly affect the liquidity of the chemical industry chain.

If natural gas prices continue to rise, European natural gas traders will need to further increase their margins, leading to even an explosion in foreign deposits. Since the majority of traders in natural gas trading come from chemical producers, such as chemical producers that use natural gas as a feedstock and industrial producers that use natural gas as a fuel. If deposits explode, liquidity costs for producers will inevitably increase, which could lead directly to a liquidity crisis for European energy giants and even develop into a serious consequence of corporate bankruptcy, thus affecting the entire European chemical industry and even the entire European economy.

2. The continued increase in natural gas prices leads to an increase in liquidity costs for chemical producers, which in turn affects the operating costs of enterprises.

If the price of natural gas continues to rise, the increase in raw material costs for European chemical production companies that rely on natural gas as a raw material and fuel will significantly increase their raw material procurement costs, leading to an increase in book losses. Most European chemical companies are international chemical producers with large industries, production bases and production facilities that require more liquidity to support them in the course of their business operations. The continued increase in natural gas prices has led to an increase in their carrying costs, which will inevitably have very negative consequences for the operations of large producers.

3. Continued increases in natural gas prices will increase the cost of electricity in Europe and the operating costs of European chemical companies.

Soaring electricity and natural gas prices will force European utilities to provide more than 100 billion euros of additional collateral to cover additional margin payments. The Swedish Debt Office also said Nasdaq's clearing house margin has risen 1,100 percent as electricity prices soar.

The European chemical industry is a large consumer of electricity. Although Europe's chemical industry is relatively advanced and consumes more energy than the rest of the world, it is still a relatively high consumer of electricity in European industry. Natural gas prices will increase the cost of electricity, especially for the high power consumption chemical industry, which will undoubtedly increase the operating costs of enterprises.

4. If the European energy crisis is not recovered in the short term, it will directly affect the global chemical industry.

At present, chemical products in the global trade is higher. European production of chemical products mainly flow to Northeast Asia, Southeast Asia, the Middle East and North America. Some chemicals have a dominant role in the global market, such as MDI, TDI, phenol, octanol, high-end polyethylene, high-end polypropylene, propylene oxide, potassium chloride A, vitamin E, methionine, butadiene, acetone, PC, neopentyl glycol, EVA, styrene, polyether polyol, etc.

There is a trend in global pricing and product quality upgrades for these chemicals produced in Europe. Global pricing for some products also depends on the level of European price volatility. If European natural gas prices rise, chemical production costs will inevitably increase and chemical market prices will rise accordingly, directly affecting global market prices.

Comparison of average price changes in the mainstream chemical market in China from August to September

Just in the past month, the Chinese market took the lead in several chemical products with a large production weight in the European chemical industry to show the corresponding performance. Among them, most of the monthly average prices rose year-on-year, with sulfur up by 41%, propylene oxide and polyether polyols, TDI, butadiene, ethylene and ethylene oxide up by more than 10% on a monthly basis.

Although many European countries began to actively accumulate and ferment the European energy crisis "bailout" However, the European energy structure can not be completely changed in the short term. Only through the mitigation of capital levels can the core problems of the European energy crisis be truly resolved, not to mention the many problems facing the European chemical industry. The information is expected to continue to deepen the impact on the global chemical industry.

China is currently actively restructuring supply and demand in the chemical industry. In recent years, the global competitiveness of companies has been accelerated through massive growth, reducing the import dependence of Chinese chemical products. However, China is still heavily dependent on Europe, particularly for high-end polyolefin products imported from China, high-end polymer material products, downgradable plastic products exported from China, EU-compliant baby plastic products and everyday plastic products. If the European energy crisis continues to develop, the impact on China's chemical industry will gradually become apparent.