The manufacturing purchasing Managers’ index (PMI) rose to 50.8% in March, indicating that manufacturing production activity improved. Moreover, downstream industries monitored by SCI started to see higher operating rates. In the future, it is expected that with further macro-control policies and the increase of infrastructure projects, the demand for natural gas from the manufacturing sector will likely increase steadily.

Industrial producers started to embrace the traditional peak season.

According to the NBS, the PMI was 50.8% in March, up 1.7% M-O-M, indicating that manufacturing production activities improved significantly. According to SCI, in the past five years, the average consumption of industrial and commercial gas (including industrial gas, commercial gas and chemical gas) accounted for 51.07% of the total, of which industrial gas accounted for 37.84% and chemical gas represented 13.23%. The change of PMI directly reflects the production performance of domestic industrial and commercial enterprises.

In March, the production index, reflecting the supply performance, was 52.2%, up 2.4% M-O-M. The new orders index, reflecting the demand performance, was 53%, up 4% M-O-M. After the Chinese New Year holiday, production improved in March, especially new orders, further boosting production enthusiasm.

Production:

In March, the output of steel, nonferrous metal, glass, textile fiber, rubber, plastics, paper, agricultural product and by product processing fields increased M-O-M. By comparison, that of gas-based methanol and gas-based urea posed declines M-O-M.

Monthly Output/Operating Rate of Some Fields

Uni: kt

In March, the operating rate of the manufacturing sector rallied overall amid a peak season, based on 58 products monitored by SCI. The output of 58 products rose by 10.17% M-O-M to 113 MMt in March, of which 55 products increased and 3 products fell. Therein, the papermaking fields outperformed, with output rising by 70.29% M-O-M. Agricultural product and by product processing fields and nonferrous metal industries followed, with the output growing by 10-20% M-O-M. With the traditional heating season drawing to a close, residential gas consumption gradually waned, and industrial gas ranked first.

Margins

The gross profits of gas-based methanol, float glass, gas-based urea, corrugated paper, battery-grade lithium carbonate tumbled in March M-O-M.

Daily Gross Profit of Some Industries

Unit: RMB/mt

Most industries faced meager profits, while the production activity picked up in March. Among 66 products, the profits of 43 products were positive, and those of the remaining 23 products were negative. Although the profits of some products fell, those of various industries were in a recovery trend, which may further boost the production enthusiasm.

Source: SCI and local DRC

Inland LNG plants sold at lows after the heating season.

LNG had a certain price advantage compared with piped gas. After the heating season, the temperature gradually warmed. Coupled with sufficient piped gas supply, city gas companies exhibited waning LNG demand. In reaction, LNG plants reduced offers to boost sales. From mid-to-late March, low-priced LNG resources prompted some city gas companies to smooth the high cost of piped gas in the peak season.

Lower gas prices eased the cost pressure on producers.

The BDI fluctuated downward. As of April 12, the BDI was 1,729, down 586 M-O-M. Overall, the sea freight index was still higher than the same period last year, indicating that the global commodity trade activity was still improving. In addition, according to the data released by the GACC, in Q1, China’s commodity export by US dollar increased by 1.5% Y-O-Y, further boosting the recovery of domestic manufacturing production activities.

It is investigated that downstream industrial users will continue to increase demand for natural gas in April, amid a combination of the peak season for the manufacturing sector coupled with lower piped gas and LNG prices. As of April 12, among 72 products, the prices of 39 products witnessed rises, while those of 33 products saw declines. Nonetheless, the overall resilience of industrial products increased. In April, with the end of the heating season, the piped gas and LNG procurement cost is expected to shift to a downtrend. Moreover, the successive implementation of macro-control policies and construction of major infrastructure, etc. are expected to continue to boost the commodity market, and the demand for gas in the downstream manufacturing industry may steadily increase.