The opposite impact from oil prices

Economy to get benefit from controlling CPI when oil prices fall

BSR's net loss is nearly VND3,000 billion in 2020 due to negative changes in oil prices. Photo: Internet

People look forward to the price

Crude oil processing enterprises are one of the enterprises most negatively affected by the fluctuation of crude oil prices and the pandemic in 2020. Due to production characteristics, processing enterprises always maintain high inventories of crude oil for production (about 30 days). The rapid decline in crude oil prices led to a decrease in the selling price, meanwhile, the production cost was still high and the inventory price devaluation had to be set aside, negatively affecting business results. Similarly, the business results in 2020 of petroleum distributors will also decline sharply due to the decrease in distribution volume and the decrease in the retail price of petroleum.

Vietnam Gas Corporation (GAS) is the only enterprise in Vietnam operating in the field of transport, processing and distribution of dry gas. GAS's profit comes from the gas transportation fee, the difference in the price of dry gas consumed and the wet gas purchased. In 2020, the MFO dry gas price fellbelowthe well mouth price, so GAS didnot get the same difference in dry gas and wet gas prices as in 2019, the profit is merely gas transportation fees. As a result, GAS's after-tax profit in 2020 has decreased by 34%, to VND7,928 billion.

Meanwhile, Vietnam National Petroleum Group - Petrolimex is the leading company in the distribution of petroleum products domestically with a market share of about 50%. In 2020, PLX recorded a strong loss in the first quarter because of a sharp fall in crude oil prices, so the company had to make a reduction in inventory price. In the remaining quarters, business performance improved because crude oil prices recovered and fuel demand increased again. However, due to the sharp decline in oil prices, revenue in 2020 will decrease by about 33%; profit after tax will decrease by 74%, at VND124,008 billion and VND1,235 billion, respectively.

For Binh Son Refining and Petrochemical Joint Stock Company (BSR) - which owns and manages the Dung Quat refinery, in 2020, BSR recorded a record loss in the first quarter and the second quarter of 2020, due to the crude oil dropping sharply, BSR had to set up inventory and the difference between the selling price of finished petroleum and the price of crude oil dropped sharply. Since the third quarter of 2020, crude oil prices have gradually recovered, but it is not enough to offset the losses in the first half of the year. As a result, BSR's whole year loss is VND2,842 billion, while in the same period in 2019; profit wasover VND3,000 billion.

Currently, oil prices have increased beyond US$60/barrel compared to the historical bottom in early 2020. Many international organizations also forecast that oil prices may rise to US$75 / barrel in the third quarter of this year. This opens up bright prospects for businesses in the oil and gas industry. Accordingly, both GAS, Petrolimex, BSR and many other companies will significantly improve profit margins compared to 2020.

The worry increases costs

While oil and gas companies eagerly expect a recovery in oil prices, the plastic industry - with input materials being petroleum products - is facing worries of rising raw material prices.

One of the two largest enterprises in the plastic pipe industry with a leading position in the Northern market is Tien Phong Plastic Joint Stock Company, which recorded a profit after tax of VND447 billion in 2020, up 9% compared to that of 2019, though net revenue decreased slightly by 3%. This growth is contributed by the decrease in COGS (down 7%) in 2020. Similarly, the leading plastic enterprise in the Southern market, Binh Minh Plastic Joint Stock Company, also recorded net profit growth in 2020 up to 24%, reaching VND523 billion.

Looking back to 2020, plastic raw material prices fell sharply in the first period of the year following the decline of Brent oil prices, helping plastic manufacturers to significantly improve profit margins. Thereafter, plastic raw material prices have recovered rapidly since the second half of the year following the rise in oil prices coupled with increased demand while supplies in North America were interrupted.

However, the price increase trend of plastic materials in the second half of 2020 will slow when the factories in North America are back to stable operation, helping to solve the shortage of supply of plastic materials in the short term for the Asian region. Average PE, PP and PVC prices in Q1 / 2021 areforecast to decrease by 5.7%, 4% and 3.9%, respectively, compared to Q4 / 2020 average.

However, this price is still much higher than the same period in 2020, at 15% for, 19.8% for PP and 22.9% for PVC. The reason is the recovery of oil prices and demand from the Chinese market is expected to remain at a high level in the first quarter and second quarter of 2021. The plastic raw material price is forecasted to remain high in the first half of 2021, which will negatively affect the gross profit margin of enterprises in the industry.