Possibility of suspending production

Petrochemicals in Vietnam are majorly produced from oil refineries and natural gas processing plants. The largest quantity of petrochemical comes from the Dung Quat refinery of the Vietnam Oil and Gas Group (PVN), followed by the Nghi Son refinery.

Petrochemical companies in Vietnam are facing the risk of suspending production since their output has dropped drastically. That is the result of the downhill demand due to social distancing throughout the country.

Lockdown and social distancing in many provinces over Vietnam caused the great plummet in demand for crude oil, petroleum, etc. PVOIL data showed that total petroleum consumption of petroleum in August was down more than 40% compared to plan. PVOIL’s retail sales in Ho Chi Minh City and southern provinces decreased by 80%, and in Hanoi by 60%. Overall, total market demand dropped by about 40%.

Consumption plummeted, forcing Petrolimex to limit the receipt of petroleum from refineries and to stop importing items that two domestic refineries could produce due to high inventories.

According to PVN, inventories of Dung Quat and Nghi Son oil refineries are up to more than 85%, although they have actively regulated capacity and taken drastic solutions to reduce inventory.

Particularly for Dung Quat Oil Refinery, the inventory is over 210,000 m3, an increase of 10,000 m3 compared to the beginning of August. A representative of Binh Son Refinery and Petrochemical Company (BSR), which is the direct operator of Dung Quat Oil Refinery, said that this plant has now reduced its capacity to 80%, the minimum production threshold. The plant's capacity level also decreased by about 10% compared to the beginning of August.

The representative also informed that due to the complicated progression of COVID-19, freight and passenger transport dropped sharply, causing the factory’s consumption rate to dropped to just over 30%. At times, BSR’s inventory amounted to more than 90%, forcing the factory to send products to warehouses, which in turn increase costs, affecting the companies’ business.

A similar situation is also happening to Nghi Son oil refinery.

If the problems cannot be dealt with, there is a high chance that the largest petrochemical suppliers of Vietnam will have to shut down for the time being.

Bleak business outlook for remaining months

In July and August 2021, BSR brought in about 11,896 billion VND (≈521 million USD) in revenue, equivalent to an average of nearly 6,000 billion VND (≈263,142 USD) per month, down 26% compared to the average in the first half of 2021.

According to the latest forecast, in the last four months of 2021, the crude oil price will tend to decrease slightly. The crack margin of gasoline tends to decrease, Jet A1 and DO tend to increase but not significantly.

Based on the progression of the pandemic, and by forecasting the situation of the petroleum market in the world and the country, BSR has developed four production and business scenarios. However, the calculation scenarios show that profit will not be good because BSR operates at a low capacity, and crack margin is not really beneficial for oil refining. The company is turning its focus on petrochemical products.

Petrolimex Petrochemical Corporation is also expecting a grim prospect. Petrolimex Petrochemicals Corporation achieved 535.5 billion VND (≈24 million USD) in gross profit. The gross profit margin decreased by 1.52 percentage points, to 15.56%.

After a positive start in the first half of the year, the business outlook for the lubricant and chemical segment of Petrolimex Petrochemical in the second half of the year is assessed to be more difficult. When the fourth Covid-19 outbreak becomes complicated and widespread, many localities applied strict isolation and distancing measures, and many footwear, paint, textile, plastic enterprises, etc., had to suspend production to prevent epidemics, thus significantly affecting the company's product consumption.

Compiled by VietnamCredit