Core Views
Due to the Russian-Ukrainian conflict and the deterioration of European and Russian relations, Russia has continued to reduce the transmission of natural gas pipelines since June 2022, and the prices of European electricity, natural gas and coal have nearly doubled, reaching a high since 2010. Russia's complete suspension of gas supply may lead to a 10% energy gap in Europe. If Russia suspends gas supply indefinitely, it may encounter La Nina again this year, natural gas prices will remain high.
Why is Europe so restricted from Russian natural gas supply? 88% of Europe's energy relies on imports, of which natural gas accounts for about 25% of Europe's energy supply, but nearly 40% of the natural gas supply comes from Russia's imports. Russia's complete suspension of gas supply may lead to a 10% energy gap in Europe. 1) From the perspective of supply sources, European energy imports account for 88% of the total supply, and are highly dependent on imports; among them, the import scale of crude oil, refined oil and natural gas accounts for 20-30% of the total supply, and each has a great impact. 2) From the perspective of energy type, European refined oil and natural gas are the main energy sources, accounting for 32.5% and 25.4%; both are mostly through direct energy supply, followed by power generation. 3) From the perspective of the application department, Europe's transportation, civil and industrial energy consumption is close, accounting for more than 20%; among them, transportation mostly relies on energy supply of refined oil, and natural gas energy supply in industrial, civil and commercial use accounts for about 40%. 4) The industrial sector is most affected by energy shortage, accounting for 30%-40% of the total power supply hot gas.
combined with 1) High-energy consumption industry in downstream applications of European natural gas; 2) The dislocation of energy structure and price in China and Europe leads to cost differences; 3) China's export-benefiting industry, we recommend looking for investment opportunities along the two clues of energy substitution and high energy consumption.
1) From the perspective of downstream industries, chemical, steel and heating are the main application industries of natural gas in Europe. In the European industrial field, chemical industry and steel consume the highest energy consumption, accounting for 20% and 17% respectively. In the European household use field, heating consumes the highest energy consumption, accounting for about 65% of household use.
2) In terms of energy consumption costs, European land air transport, steel mining, and basic oil refining are relatively expensive, with energy costs accounting for more than 7%, and energy consumption intensity greater than 0.6. Europe's land air transport, steel mining, and basic oil refining consume more energy. When energy prices rise, product costs increase more and gross profit margins suffer greater damage.
3) From the perspective of the energy cost difference between China and Europe, the energy costs of China's coal, papermaking, grain, and steel mining account for less than 2%-7% of Europe, and it already has relative energy advantages. Against the backdrop of rising energy prices, the gap in gross profit margins between China and Europe has widened.
4) From the perspective of China's exports, chemical clothing, motors and electrical equipment, etc. have seized global and European shares due to the energy crisis. After excluding seasonal factors, global steel exports increased significantly, with global exports increasing by US$7.8 billion due to the energy crisis; organic compounds occupying the European market most significantly, and Europe's imports of organic compounds to China increased by US$9.2 billion due to the energy crisis.
Clue 1: Energy substitution - Low-cost new energy substitutes for traditional energy. Natural gas accounts for about 40% of European industrial, civil and commercial energy consumption, and supply shortage will have a huge impact on the production and life of European people. The cost advantages of alternative energy are emerging under the impact of rising prices of traditional energy. You can pay attention to new energy sources such as photovoltaic , biodiesel, heat pumps, etc.
Clue 2: High energy consumption - chemical industry and smelters are impacted by raw materials and production costs, the cost price difference widens, and high demand manufacturing exports benefit. 1) Chemical chain: Prices of natural gas, crude oil, etc. increase the raw material cost of chemical products, high energy consumption in chemicals increases production costs, the cost price difference between China and Europe widens, and China's exports benefit, so you can pay attention to fertilizers, leather, etc. 2) Smelting chain: Steel and metal smelting plants cut production and stopped production under high energy consumption cost loads, Europe's supply shortage and China's exports increased under high costs, so you can pay attention to steel and aluminum, etc.3) Manufacturing chain: upstream metals have cost-price spreads while benefiting from the high export demand, and you can pay attention to batteries, cars, etc. We have screened out 10 combination targets that benefit from the energy crisis for investors' reference.
Risk warning: energy prices fall; macroeconomic declines; historical results cannot simply predict the future.
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1. Under the conflict between Russia and Ukraine, the prices of energy such as natural gas doubled, affecting European production and life
1.1. In 2022, the prices of electricity, natural gas and coal in Europe have risen by more than 100%
2022, the prices of electricity, natural gas and coal in Europe have nearly doubled, and have reached their highs since 2010. Since 2022, due to the impact of Russia-Ukraine and the deterioration of European and Russian relations, European energy prices have continued to rise: Although the electricity trading prices in Germany and France in September 2022 fell compared with August, they are still 57% and 44% higher than the beginning of the year respectively; the prices of coal, crude oil and natural gas have risen by 117%, 25% and 83% respectively, among which coal and natural gas have reached their highs since 2010, and the price of crude oil has also continued to be at a high of US$80-120 per barrel. The soaring energy prices will directly impact European industrial production and residents' lives.
1.2. Russia's suspension of gas supply may cause a 10% energy gap in Europe
From the perspective of supply sources, European energy imports account for 88% of the total supply, and they depend on imports; among them, the import scale of crude oil, refined oil and natural gas accounts for 20-30% of the total supply, and each has a great impact. European energy is highly dependent on imports: local production, import and export account for 56%, 88%, and -36% of the total supply, respectively. The energy source is very dependent on imports, with crude oil, refined oil and natural gas imports accounting for 34%, 21%, and 24% of the total supply respectively; local production accounts for only 8-16% of the total supply, and the single impact is weaker than imports.
6 months ago, reducing natural gas supply by pipelines as a reason, and completely stopping gas supply may lead to a 10% energy gap in Europe. Under the Russian-Ukrainian conflict, Russia has been using natural gas from time to time, reducing natural gas supply by 4 degrees using excuses such as pipeline maintenance; in early September, the pipeline was shut down again, resulting in a 10% energy gap in Europe. In the scorching summer this year, the supply of hydropower and nuclear power has decreased, further increasing the supply and demand gap. If Russia suspends gas supply indefinitely, or if it encounters cold winter again this year, natural gas prices will remain high.
2. The proportion of direct energy supply and power generation in natural gas is large, and the industrial pressure is greater under the price increase of energy
2.1. From the perspective of energy supply, natural gas accounts for 25%, and its direct energy supply and power generation are about 60%, and 30%
From the perspective of energy type, European refined oil and natural gas are the main energy sources, accounting for 32.5% and 25.4%; both are mostly through direct energy supply, followed by power generation. points to direct use, the direct energy supply of refined oil and natural gas accounts for the largest proportion, accounting for 74% and 57% of refined oil and natural gas, respectively, and 23.9% and 14.5% of the total energy supply.
2.2. From the perspective of the application department, natural gas accounts for about 40% of the supply of industrial, civil and commercial energy
From the perspective of the application department, European transportation, civil and industrial energy consumption is close, accounting for more than 20%; among them, transportation mostly relies on energy supply for refined oil, and natural gas energy supply for industrial, civil and commercial use accounts for about 40%. Transportation, civil use and industrial use account for 28.4%, 24.2% and 23.7% of the total consumption, respectively. Among them, natural gas energy supply accounts for a high proportion in civil, industrial and commercial use, with nearly 40%. Nearly 90% of transportation is supplied by refined oil. (Power supply and heating are converted into various types of energy)
2.3. Industry is most affected by the shortage of energy, accounting for 30%-40% of the total power supply hot gas
Industrial electricity, heat and gas consumption both account for about 30%-40% of the total European consumption. only looks at power supply and heating, industrial power consumption and heat consumption account for 37.4%, 36.2%, and 32.8% of the total power supply, heating and gas supply; civilian power consumption and heat consumption account for 29.1%, 42.1%, and 41.0%.
3. From the perspective of cost difference, the chemical smelting and manufacturing industry with intensive energy and energy consumption benefited from exports
3.1. From the perspective of downstream industries, chemical, steel and residents' heating are the main areas of natural gas in Europe
Overall, chemical, steel and heating are the main application industries of natural gas in Europe. 1) In the European industrial field, chemical and steel consume the highest energy consumption, accounting for 20% and 17% respectively. In 2019, the industrial energy consumption reached 253 million tons of oil equivalent, of which chemical and steel energy consumption reached 51 million tons of oil equivalent, with the largest energy consumption. 2) In the European home use field, heating consumes the highest energy consumption, and energy consumption accounts for about 65% of household use. is followed by water heating and electrical appliances, accounting for 14% and 13% respectively, and its energy consumption is 34 and 33 million tons of oil equivalent, respectively.
3.2. From the perspective of energy consumption costs, Europe's transportation, steel mining, and basic refining energy consumption is relatively high.
From the perspective of energy costs in various European industries, the energy costs of land transportation, air transportation, cement, electricity coal, building materials, and steel rank among the top, with 24%, 18%, 16%, 15%, 14%, and 10%, respectively. Judging from the energy consumption intensity of various European industries, the energy consumption intensity of steel, electric coal, oil refineries, air transport, and ferrous metal ranks among the top, at 2.4, 2.1, 1.4, 1.2 and 1.0 respectively.
Overall, land and air transport, steel mining, basic oil refining, cement, electric coal, and papermaking consume more energy. When energy prices rise, product costs increase more and gross profit margin damage is greater. The energy costs of most manufacturing industries usually account for less than 10% of the total production costs. Energy-intensive industries are most sensitive to cost changes and differences in energy prices, including land transport, air transport, cement lime, electricity, gas and steam, clay building materials and steel.
3.3 From the perspective of the cost difference between China and Europe, China's energy costs account for a lower proportion of electricity coal, papermaking, grain, and steel.
From the perspective of the difference in energy costs, China's energy costs account for significantly less than 2%-7% in Europe, and it already has relative energy advantages. We compare the energy cost proportion of comparable industries in China and Europe (excluding some industries with inconsistent caliber and missing data), China's energy costs of coal, paper, grain, and steel mining are significantly lower than those in Europe.
Against the backdrop of the increase in energy prices, the gap in gross profit margin between the Chinese-European industry has widened, and the gross profit margins of various European industries have been significantly damaged. We calculate the gross profit margins of comparable industries in China and Europe under different energy prices. Assuming that income and non-energy costs remain unchanged, European energy prices adopt the average price of natural gas in the current period, and China's energy prices adopt the average price of electricity. When the energy prices are the average price of 21 years, 22H1, and 22.7-August respectively, the gross profit margin difference between Chinese-Europe basically remains within 10%, ranging from 10%-60%, and ranging from 20%-130%.
3.4. From the perspective of China's exports, chemical clothing and electrical equipment seize the global and European shares
We select the HS2 classification, and the main products that China accounts for more than 5% of the global export share are listed in the table below. In 2020, the outbreak of the new crown epidemic, the global supply shortage was also in short supply. Europe's global export market share in 2020 and 20-21 after the outbreak was relatively stable and was not significantly impacted by the epidemic. China has significantly benefited from global order transfer after the outbreak of the epidemic with its industrial chain supply, and the share of various industries in the global export market increased by less than 10%.
From the perspective of Chinese products occupying the global market share, China's chemical, textiles, automobiles, steel and aluminum have significantly benefited from the energy crisis. The increased global exports due to the energy crisis ranged from US$1-7.8 billion, of which steel benefits the most significantly, reaching US$7.8 billion. At the end of February 22, the Russian-Ukrainian conflict occurred. Observing the changes in China's exports to major global products in 22Q2, compared with Q1, the chemical, textile and clothing-related industries have significantly benefited from the energy crisis, with global export increase ranging from US$4.8 billion, the automobile-benefiting energy crisis increased by approximately US$5.5 billion, the motor and electrical equipment benefited from the energy crisis increased by approximately US$500 million, and the steel and aluminum-benefiting energy crisis increased by US$7.8 billion and US$2.4 billion.
We select the main industries in the HS2-level classification that account for more than 0% of the imports from China in Europe are listed in the table below. Europe's share of imports from China increased by about 2% from 20 to 21 to 21 years after the outbreak of the new crown epidemic. This year, natural gas prices in Europe have soared, and industrial products have reduced production or increased prices under cost pressure, and the competitiveness of products has weakened, leaving room for imported Chinese products.
From the perspective of Chinese products occupying the European market share, China's electrical equipment and chemical compounds have significantly benefited from the energy crisis. Europe's imports to China increased by US$2 billion to US$9.2 billion due to the energy crisis, of which Europe's share of organic compounds imported to China increased by 9.6%. Observe the changes in the major products imported from China in 22Q2 relative to Q1. Chinese compounds and electrical equipment have significantly benefited from the energy crisis. Europe's imports to them ranged from US$300 million to US$9.2 billion, and China's imports, which benefited from the energy crisis, increased by US$2.1 billion. Since Europe itself is a major automobile exporter, accounting for about 46% of global exports and imports few vehicles from China, this round of Chinese automobiles has not successfully seized the domestic European market.
4. Industry perspective: 2 clues for energy substitution and high energy consumption
combined 1) High energy consumption industry in downstream applications of European natural gas; 2) The dislocation of energy structure and price in China and Europe leads to cost differences; 3) China's export-benefiting industry, we recommend looking for investment opportunities along the two clues for energy substitution and high energy consumption.
4.1. Energy substitution: Low-cost new energy substitution traditional energy
63 The cost advantage of alternative energy is revealed under the impact of the price increase of traditional energy, and the demand for low-cost new energy substitution traditional energy has increased accordingly, and China's new energy, such as photovoltaics, biodiesel, heat pumps, etc., has benefited. Before 2021, the electricity price of Germany and France was 30 euros/Mwh, and the prices of wind power and photovoltaics in Europe were 45 euros/Mwh during the corresponding period. Under the current impact of European energy, the electricity prices in Germany and France have exceeded 300 euros/Mwh, while the prices of wind power and photoelectric power are at 65 euros/Mwh, which shows comparative advantages. In addition, biodiesel is a green fuel that is better to replace petrochemical fuels. At the end of August 2022, China's biodiesel export price is 33% lower than the European natural gas price; heat pumps are efficiently heated, low energy consumption and low emissions. On the premise of providing equal amount of heat energy, the energy consumption cost of heat pumps is about 30%-50% of gas, which is an efficient energy to replace household natural gas.
4.2. High energy consumption: The price difference between chemical and smelters has widened, and high demand manufacturing exports benefit
1) Chemical chain: On the one hand, natural gas, crude oil, etc. are raw materials in the chemical field, and rising prices increase the raw material cost of chemical products; on the other hand, the production costs of chemical industries with high energy consumption have also increased. Most of the chemical refineries in Europe are thermal power operations, and refineries are one of the most energy-intensive areas. The cost of basic chemical energy accounts for 7%, and the energy consumption intensity of refineries reaches 1.2, all of which are at the forefront of the industry. The sharp rise in energy prices has overloaded the electricity prices of European refineries, and the proportion of domestic chemical products in energy costs compared to Europe is relatively different. The cost advantage is obvious under the background of energy price increase.
can pay attention to the widening of cost spreads between China and Europe, such as fertilizers and leather, and benefiting from the opportunities of export demand. Under the cost pressure of , the production of synthesis of ammonia , etc. in European chemical raw materials , etc. has decreased. Synthetic ammonia is the upstream of fertilizers such as nitrogen fertilizer and phosphorus fertilizer. On the one hand, China's raw materials and energy costs of fertilizers are lower than those of Europe. On the other hand, the rising grain prices have driven the increase in demand for fertilizers.Synthetic ammonia is also the main raw material for polyurethane. The price difference between China and Europe polyurethane has widened, downstream leather and other performance has rebounded, and exports have improved.
2) Smelting chain: Steel and metal smelting plants cut production and stopped production under high energy consumption cost loads, and China's exports benefited from the shortage of supply in Europe and high costs. The steel output in Europe mainly comes from high-energy consumption electric arc furnace or small steel mills. The energy cost of the European steel industry accounts for 10%, and the energy consumption intensity is 2.1, both of which rank among the top, and the energy cost of other mining industries also accounts for more than 5%. The rapid rise in electricity prices has restricted scrap iron from smelting into new steel, many smelters are closed due to high costs, and other high-energy-consuming metals are similar. can focus on steel and aluminum that are exported to increase.
6 European smelting companies account for significantly higher energy costs than Chinese companies in the same industry. In the case of rising energy costs, due to the high elasticity of European natural gas prices, the price of China's electricity is relatively stable, and the gross profit margin damage in European companies is significantly more serious. Assuming that the gross profit margin declines between 80% and 300%. The proportion of energy in the same industry in China is significantly lower than that of European companies, and the gross profit margin is relatively higher than that of European companies. In addition, the elasticity of European natural gas and the elasticity of Chinese electricity prices, the gross profit margin of European companies has been significantly damaged. Assuming that revenue and non-energy costs remain unchanged, the gross profit margin of typical European steel/aluminum industry in 22 years has declined by 315.8%/89.2% compared with 21 years, while the gross profit margin of Chinese companies is relatively stable.
3) Manufacturing chain: While the upstream metals have a cost difference, they benefit from the high export demand. They can pay attention to photovoltaic cells , which benefit from the strong demand for new energy, and automobiles that seize the global market. The energy cost difference of China-Europe steel and mining is among the top in the industry. The rising prices of metals from various raw materials have driven the increase in battery costs. The energy cost of electrical equipment belonging to China's batteries is smaller than that of Europe. While China-Europe batteries have cost differences, the demand for photovoltaic new energy is strong, and domestic batteries benefit from the increased export demand and high performance. The prices of automobile raw materials such as steel, plastics, and rubber have increased, and the high electricity prices have increased the production costs of automobile processing plants, the competitiveness of European fuel vehicles has weakened, and China has seized the global share of European automobile exports.
4.3. Benefiting from the energy crisis stock pool
We start from the potential segmented beneficiary industries (energy chain, chemical chain, smelting chain, manufacturing chain) sorted out the targets that may benefit from the energy crisis and increase exports from the energy crisis based on the potential segmented beneficiary industries (energy chain, chemical chain, smelting chain, manufacturing chain) sorted out the above-mentioned targets that may benefit from the energy crisis (analyst coverage is greater than or equal to 3 companies). The 22H1 export revenue of the stock pool increased compared with the beginning of the year and was higher than 20% in the current period. At the same time, the 22H1 export revenue increased compared with the same period last year.
Benefiting stock pool, please follow "Li Meichen Investment Strategy" to view.
This article is excerpted from the official account "Li Meichen Investment Strategy". For details of the specific report content and related risk warnings, please refer to the full version of the report.
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