Looking at the Development Opportunities of the Diamond Composite Chip Market from the Petroleum Industry

Polycrystalline diamond composite (PDC) is a new functional material, which is sintered by diamond powder and cemented carbide substrate under ultra-high pressure and high temperature. It not only has the high hardness, high wear resistance and thermal conductivity of diamond, but also has the strength and impact resistance toughness of cemented carbide. It is an ideal material for manufacturing cutting tools, drilling bits and other wear-resistant tools. With the rise of oil price this year, the diamond composite film industry has experienced a recovery, which has achieved a significant growth compared with the same period last year. However, in recent years, the oil mining industry has experienced a lot of fluctuations, and the crude oil price is also changing, which has also brought some impact on the diamond composite film market.

1. Events

On the evening of September 5, Beijing time, OPEC+(the organization of Petroleum Exporting Countries and its partners) held the 32nd ministerial meeting, and decided to cut crude oil production by 100000 barrels per day in October. Last month, OPEC+agreed to increase its output in September by 100000 barrels per day, the smallest increase in the alliance's history. This decision to reduce production also offset the previous increase.

Although the meeting finally decided to reduce production by only 100000 barrels per day, this measure released the situation that OPEC+aims to stabilize the continuous decline of global oil prices in the near future. After the release of the production reduction decision, the international oil price also stopped falling and rose collectively. Both WTI crude oil price and oil distribution price rose by more than 2%.

Xiao Bian believes that OPEC+'s desire to increase production is not strong, the price of crude oil is expected to maintain a boom, and for diamond composite products, it will still maintain a high boom for a period of time.

2. Cause analysis

First of all, the current OPEC+capacity is in the recovery stage, and the increase in output is less than expected. In 2020, in order to solve the situation of severe excess global oil demand, OPEC+reached the largest production reduction agreement in history, with the maximum production reduction amount of 9.7 million barrels/day, and then gradually adjusted to 5.8 million barrels/day. In August 2021, according to the market situation, we will start to increase production one after another. From the monthly increase of 400000 barrels/day to September 2022, we will gradually return the production of 5.8 million barrels/day to the market. However, according to the actual output of the ten OPEC countries, by the end of 2021, the increase of their actual output will be far lower than the agreed output, and even in March and May 2022, their output will decline month on month. Because of the sanctions, Russia's actual output is far lower than the target output. From the current production situation, although the planned output reduction in October is 100000 barrels per day, except for Saudi Arabia and other major oil producing countries, which can strictly implement the agreement, other oil producing countries are currently unable to reach the output target. Even if the quota is lowered, they still cannot reach the target. Therefore, for OPEC+as a whole, the oil production situation will hardly change significantly.

 At present, it is difficult to push the crude oil price up with the production reduction of 100000 barrels per day alone. However, from the perspective of production reduction, oil producing countries will not accept the crude oil price of 90 dollars per barrel, nor accept the political pressure of the United States. They prefer to maintain the previous situation of high oil prices and high returns, which will play a significant role in supporting the crude oil price.

 Secondly, the upstream capital expenditure is insufficient, and the growth of US crude oil supply is still fragile. From January to July this year, the output of shale oil crude oil in the United States increased by only 610000 barrels per day, which was very weak. At present, the production of shale oil in the United States is still about 1 million barrels/day away from its peak before the epidemic. The decline of upstream capital expenditure and the high rate of return pursued by shareholders restrict the further development of oil and gas. Although shale oil production is gradually recovering, it is still difficult to return to the previous high. From this point of view, the U.S. crude oil is still relatively stable in the short term, which is good news for the current oil composite market.

 In terms of the petroleum and petrochemical sub sector in the near future, the overall trend is on the rise. At the same time, with the geopolitical tension, the surplus capacity of OPEC countries is insufficient, and the upstream capital expenditure is insufficient, the oil and gas price is expected to remain relatively prosperous for a period of time. It can still play a positive role in the stable development of the upstream and downstream of the oil industry.

 In this case, as an important raw material for oil drilling, diamond composite chips can still achieve relatively stable development in a short time. For example, according to the 2022 semi annual report of Sifangda, a major listed company producing diamond composite chips, its operating income in the first half of the year was 262 million yuan, an increase of nearly 33% over 197 million yuan last year; Its net profit was 99.7191 million yuan, an increase of nearly 86.23% compared with 53.5459 million yuan in the same period last year. Similarly, other diamond composite chip manufacturers, including Xinya, have achieved growth to varying degrees over the same period last year.

 Therefore, from the perspective of the stability of oil prices and the attitude of the current ten OPEC countries, the oil industry and its upstream and downstream industries still have a relatively stable development boom in the short term. However, in terms of long-term development, relevant enterprises should still pay timely attention to the industrial risks brought by the aggravation of geopolitics and sharp fluctuations in crude oil prices.