20160831-高盛-China_Energy_Tracker__July__Hot_weather_vs._cool_economy_23页_746kb

China Energy Tracker Summary (July)

Core Content Overview

The China Energy Tracker for July highlights the mixed performance of the energy sector, influenced by both macroeconomic conditions and weather-related factors. Despite a generally weak energy demand growth, power demand showed resilience due to hotter weather, while other energy products such as crude oil, refined products, and natural gas experienced subdued demand growth. The report also discusses the evolving dynamics in the refining and export sectors, as well as the broader implications for the energy market.

Key Highlights

Crude Oil

• Supply: Domestic production declined by 8% yoy, the largest drop since 2012. Imports increased by 1% yoy, with a 27.9% mom rise, offsetting the production decline.
• Demand: Implied real demand rose by 2.4% yoy, but year-to-date growth is 6.4%, lower than 8.1% in 2015.
• Inventory: Crude oil inventory increased by 0.08% mom, with a -1.9% yoy change in implied demand.
• Trend: The report suggests that rising imports are helping to meet domestic demand, but the trend may continue into 2017 due to high lifting costs.

Refined Products

• Demand: Implied real demand for refined products grew by 0.7% yoy, compared to 0.9% under the conventional methodology.
• Gasoline: Implied real demand fell by 2.1% yoy, with a -5.9% mom decline in apparent demand.
• Diesel: Implied real demand declined by 6.0% yoy, and apparent demand has fallen for 11 consecutive months.
• Exports: Diesel exports reached record-high levels, with a 181% yoy increase, despite weak domestic demand.
• Refining: Refining throughput growth slowed, and industrial production growth also decelerated. Teapot refiners (smaller, private) showed stabilized utilization, while state-owned refiners faced pressure from reduced demand.

Natural Gas

• Demand: Apparent demand grew by 2.3% yoy, but year-to-date growth is slower than in 2015.
• Production: Domestic production dropped by 4% yoy, and demand slowed by 2% yoy.
• Pricing: The government is consulting on gas pipeline pricing reforms, targeting a 8% regulatory return on cost-plus basis.

Power

• Utilization: Power utilization decline slowed to 1% yoy, the smallest since January 2015.
• Consumption: Power consumption grew by 8.2% yoy, with a 12.1% mom increase, supported by hot weather.
• Renewables: Wind power utilization improved by 15% yoy, but the Central Government's policy execution faced local resistance.
• Nuclear: Under-utilization remains a challenge, particularly in Liaoning and Fujian.
• Thermal Coal: Coal prices at power plants rose by 6.1% mom, but this is attributed to supply chain adjustments rather than a true shortage.

Main Points

• Power demand was the only bright spot in July, driven by hot weather, despite weak macroeconomic activity.
• Crude oil production fell significantly, while imports rose to support domestic needs.
• Diesel demand continued its 11-month decline, but exports surged to record levels.
• Gasoline demand also declined, with inventory rising.
• Natural gas demand slowed, but year-to-date growth still outperformed 2015.
• Teapot refiners are gaining market share, with utilization stabilized.
• The enhanced methodology for measuring refined product demand revealed a 7% higher average demand since 2011, with improved accuracy due to more comprehensive product scope and adjusted unit conversions.

Key Information

• Investment Recommendations: Buy PetroChina, Longyuan, Huadian, CRP, and CPI due to pipeline reform, policy support, and high dividend yields.
• Data Sources: The report uses data from Bloomberg, China Customs, NBS, NDRC, Xinhuanet.com, and Goldman Sachs Global Investment Research.
• Methodology Notes: The enhanced methodology accounts for LPG and aromatics consumption, providing a more accurate picture of refined product demand.

Conclusion

The July energy report reflects a mixed landscape in China's energy sector. While power demand showed some resilience due to weather, crude oil and refined product demand remained weak. Diesel exports reached a new high, and natural gas demand, though slowing, still grew year-on-year. The refining sector faces challenges due to weak domestic demand and capex discipline, while policy reforms are underway to address market inefficiencies and pricing structures.