China's Petrochemical Industry Momentum Weakens in November as Demand Softens and Oil Prices Fall

In November, China's Petroleum and Chemical Industry Business Conditions Index fell to 97.21, marking a month-on-month decline of 2.58 percentage points and ending two consecutive months of recovery. With the conclusion of the traditional consumption peak season—commonly described as 'September is gold, October is silver'—terminal demand weakened noticeably. Persistently weak international crude oil prices reduced costs for downstream enterprises but further compressed margins for upstream producers. The upward momentum supported earlier by lower costs and peak-season orders proved unsustainable, and divergence between upstream and downstream performance became increasingly evident.

The petroleum and natural gas extraction industry's prosperity index stood at 96.72, down 0.23 percentage points month-on-month, remaining at a relatively low level within the normal range. Continued global oversupply, along with fading geopolitical risk premiums, kept crude oil prices depressed and prolonged the cycle of 'falling prices and shrinking profits' across the sector.

The Fuel Processing Industry Prosperity Index fell sharply to 94.68, a month-on-month drop of 10.47 percentage points. The prosperity range plunged from overheated directly into subdued territory, representing the most volatile movement among all tracked segments in November. The sector faced a steep demand decline after the peak season, with slower end-user absorption reducing finished goods turnover. Despite persistently low raw material costs, weak product prices intensified profit compression, prompting a rapid shift from peak-season healthy operations to off-season adjustment.

The chemical raw materials and chemical products manufacturing sector recorded a business confidence index of 102.37, rising by 1.16 percentage points month-on-month and remaining within the normal range. It was the only segment to show improvement in November, driven by its advantageous position in the industrial chain. Benefiting from earlier low input costs, profitability showed slight improvement. Compared with downstream plastics and rubber producers exposed directly to volatile consumer markets, its demand demonstrated greater rigidity and lag, with smoother inventory turnover, establishing it as the key sector supporting industry-wide stability.

The rubber, plastics and other polymer products manufacturing business activity index stood at 93.95, down 1.39 percentage points month-on-month, falling from normal into the subdued range. This reflects weak terminal consumer demand after short-term stock-up activities such as Double Eleven. Under sluggish demand, weaker bargaining power further eroded margins, highlighting the segment's high dependency on end-consumer markets.

Macro-economic Context

China's macroeconomic data showed the November PMI at 49.2%, up 0.2 percentage points month-on-month, indicating improved business conditions. The production index reached 50.0%, rising 0.3 percentage points and remaining at the threshold, signalling stable manufacturing output. The new orders index rose to 49.2%, up 0.4 percentage points month-on-month, reflecting an improved market demand environment.

The November PMI and petrochemical prosperity index trends validate the time-lag effect identified in the October prosperity index analysis. While the October PMI correction signalled weakening demand pressure, the petrochemical prosperity index continued rising due to ongoing execution of peak-season orders. In November, the petrochemical index correction confirmed the demand shift previously indicated by the PMI.

Hot Topics and Sector Outlook

1. Geopolitical Risk Eases, Crude Prices Decline

In November, Russia-Ukraine peace negotiations entered a substantive stage, and a proposed peace plan significantly reshaped market expectations. Although negotiations have yet to reach consensus, clear signs of de-escalation sharply reduced crude oil's geopolitical risk premium. This expectation adjustment became the primary driver behind the ongoing decline in international oil prices.

2. Fluctuating Rate-Cut Expectations Increase Price Volatility

Throughout November, market expectations regarding US Federal Reserve rate cuts fluctuated substantially. The absence of key economic indicators due to the earlier US federal government shutdown complicated assessments of a potential December rate cut. This uncertainty reinforced scepticism regarding a soft landing for the US economy and heightened volatility risks for petrochemical-related raw material pricing and cost management.

Industry Outlook

While the November PMI showed slight improvement, China is expected to face seasonally weaker demand in December. Combined with uncertain growth prospects in major overseas economies, export momentum remains under pressure, and overall demand is expected to decline. Crude oil prices are anticipated to remain weak amid persistent strong supply and soft demand fundamentals, continuing to suppress upstream profitability. Although mid- and downstream segments will benefit from lower costs, sluggish demand may offset these advantages.

Overall, the petrochemical industry lacks strong upward momentum in December, and the business climate index is expected to decline slightly. Should the US Federal Reserve proceed with rate cuts or China's major policy meetings release positive signals, some degree of market support may emerge.