Investment direction of the chemical industry under the dual-carbon background

Pro-cyclical recovery has accelerated, the industry's prosperity has risen sharply, and the performance of domestic chemical industry leaders has continued to improve. Since the second half of 2020, as expectations for economic recovery at home and abroad have continued to strengthen, international crude oil prices have risen significantly, real estate in the United States has recovered and maintained a high boom, the supply side has been the first to recover after the epidemic has been controlled in China, and the transformation and upgrading of domestic manufacturing has been steadily progressing. Since May 2020, the chemical industry has accelerated the recovery process after passing the inflection point of the recession caused by the NCP epidemic. Part of the global chemical product orders have shifted to China, and the chemical industry's business scale and capital market performance have shown a “U-shaped” reversal.

Entering 2021, overseas supply has been impacted by the impact of the epidemic and extreme weather, domestic orders for some chemical products have been transferred, supply-side reform policies have been effective during the "13th Five-Year Plan" period, and most chemical products are raw materials under the background of loose global liquidity Multiple positive effects such as general rise and better marginal demand in the middle and lower reaches of the industry: In the first half of 2021, the chemical market showed a “resonant rise” in which the prices of bulk chemical basic raw materials and resource products pushed up the middle and lower reaches of the chemical industry chain; in 2021 In the second half of the year, under the influence of "dual control" and production restrictions, the domestic chemical products side further contracted, and the traditional peak season of "Golden Nine and Silver Ten" has arrived, and the mismatch of supply and demand promoted the chemical industry's prosperity. On the whole, in 2021, the pro-cyclical recovery will accelerate, and the industry's prosperity will increase substantially:

Chemical Product Price Index: CCPI (China Chemical Product Price Index) has rebounded from the bottom (April 2, 2020) at 3,154 points, the highest point in the past 8 years (October 19, 2021), which is about 6,467 points, which is relatively high Compared with the 4153 points at the beginning of the year (January 4, 2021), the points increased by 55.72%. As of December 8th, the CCPI price index has already recovered more than 20% from a relatively high point. Among them, it is worth mentioning that “Golden Nine and Silver Ten” is the traditional peak season for demand in the chemical industry. From September to October 2021, chemical products have performed well. The main chemical products continue to adjust price channels, and the prices of multiple products continue to rise and reach new highs. Historical high point. Since the beginning of 2021, the PPIs of all industrial products, chemical raw materials and chemical products manufacturing, chemical fiber manufacturing, rubber and plastic products, petroleum, coal and other fuel processing industries have all changed from negative to positive year-on-year in the same month, and markedly Go up and hit a new high.

Performance restoration: benefited from the impact of overseas supply under the impact of the epidemic and extreme weather, the transfer of some domestic chemical product orders, the effectiveness of supply-side reform policies during the "13th Five-Year Plan" period, and the general rise of raw materials for most chemical products under the background of inflation. The marginal demand of downstream industries is positive. In the first half of 2021, the chemical market will show an "industrial chain resonance rise"; in the second half of the year, under the influence of "dual control" and limited production, the domestic chemical product supply side has further contracted, and the "golden nine silver" Ten" The peak season for traditional demand has arrived, and the mismatch between supply and demand has pushed up the economy further. We select a sample of 410 listed mainland chemical companies that have stabilized operations in 2020Q1 (excluding Sinopec, PetroChina, and B shares) to calculate the total operating income and total net profit attributable to the parent. On the whole, so far in 2020Q1, the operating income of 410 chemical listed companies has continued to recover significantly year-on-year and quarter-on-quarter; from 2021Q1-Q3, the total net profits of 410 chemical listed companies attributable to their parents will be 637.81, 81.222, and 72.479 billion yuan, a year-on-year increase of 232.60%. , 112.75%, 74.01%, a month-on-month increase of 100.84%, 27.35%, -10.76%, and the chemical industry's prosperity further climbed. In Q4 of 2021, with the cost reduction and downstream demand entering the off-season, we expect the chemical industry's prosperity will decline.

In terms of sectors, in terms of basic chemicals, the growth rate of demand for new energy vehicles, photovoltaics, semiconductor industry chains and other related chemical products (such as lithium hexafluorophosphate, iron phosphate, dimethyl carbonate, PVDF, EVA, soda ash, trichlorosilane, etc.) Bright; titanium dioxide, glyphosate, spandex, organic silicon, soda ash, acetic acid and other products are mismatched in supply and demand, and the boom has risen sharply; under the background of high global crop prices + rising costs, elemental fertilizers (urea, phosphate fertilizers) and compound fertilizers The prosperity of the fertilizer industry has been greatly boosted, and the supply and demand pattern of pesticide products such as glyphosate and glufosinate continues to be optimized; sub-sectors such as glass fiber, coatings, paints, and inks will continue to recover strongly;

In addition, due to the dual control of energy consumption and power curtailment, some high energy consumption chemicals have experienced a phased supply and demand imbalance. For example, the prices of yellow phosphorus, industrial silicon, coal, oil and gas have soared in the short term; in petrochemical industry, the leading company's refining equipment The competitive advantage is outstanding, the supply side of the polyester industry will accelerate the clearing of backward production capacity; the global demand for chemical products such as disinfectants, masks, goggles, and plastic packaging is strong; in terms of new materials, the downstream demand of automotive exhaust purification materials and plastics will be affected by the policy. Landing stimulus, there is a large room for growth; semiconductors, new energy chemicals, carbon fiber and other import substitution logic is still sustainable; high-performance engineering plastics and high-performance membrane materials benefited from the release of downstream demand, is expected to enter a stage of rapid growth.

2 Basic chemical industry investment strategy in 2022: investment direction of the chemical industry under the background of "dual carbon"

From 2020 to 2021, the contradiction on the supply side of my country's chemical products will further intensify. From the perspective of my country's production cycle, the duration of a round of production cycle is about 7-11 years, and it mainly goes through the four stages of "passive reduction of capacity-active supplementary capacity-passive supplementary capacity-active reduction of capacity". Since the reform and opening up, my country has gone through four cycles of production capacity. With the "13th Five-Year Plan" supply-side reform, the old production capacity of the chemical industry has been gradually eliminated, and the industry concentration has increased and concentrated to the top. Since 2017, my country has opened the bottom and starting point of the fifth round of production capacity cycle. The characteristics are:

1) Under the dual effects of supply-side reforms and equipment upgrade cycles, the volume production capacity has been upgraded and adjusted and the layout optimized. At the same time, between 2016 and 2017, chemical companies have achieved significant results in deleveraging; 2) From the perspective of fixed asset investment completion, the pace of capacity investment in the upstream raw material industry has slowed down, and the production capacity of the petrochemical/chemical fiber industry has been released rapidly; 3) Environmental inspections at various localities and levels have increased and "looked back" many times, and continue to attach great importance to safety production issues. Chemical companies that violate construction regulations, fail to meet production standards, and have outstanding safety hazards will accelerate their withdrawal. From 2017 to 2018, most of my country's chemical sub-sectors have cleared their production capacity, and a new round of production cycle launch/release period is about to begin. However, in 2020, affected by trade frictions, de-globalization, and the impact of the new crown epidemic, the global economy will slow down and the chemical industry will be under pressure. At the same time, a number of new chemical projects will be shelved. This sets the tone for the prominent contradictions on the supply side of chemical products in 2021.

As an important middle and upper reaches of the industry, the development of my country's chemical industry always follows the direction of the national economy industry, whether it is the "three acids and two alkalis" before liberation, or the "fertilizers and pesticides" after liberation, or even the chemical fiber after reform and opening up. , The rapid development of the rubber and plastics industry serves my country's social and economic development and industrial structure upgrading. 2021 is the first year of the "14th Five-Year Plan". The "14th Five-Year Development Plan for Petrochemical Industry" pointed out that the goal of my country's petrochemical industry is to move from a big country to a strong one; "Under the background of the vision, energy reforms and long-term deep emission reductions have become an inevitable trend for my country in the future.

Under the co-catalysis of the remarkable results of supply-side reforms, the lower-than-expected capacity release under the impact of the epidemic, and the co-catalysis of production restrictions under the background of “dual energy consumption control”, the contradiction between the supply and demand of my country's chemical products will be further highlighted in 2021. At this stage, my country’s chemical industry is still in a period of strategic opportunities, and the potential for optimization and upgrading of the industrial structure of the industry is still huge. The field of new energy upstream materials is ushering in major development opportunities; in addition, the long-term implementation of the “dual energy consumption control” policy and the recent high energy consumption The liberalization of electricity prices for related industrial products will push up their production costs in the long term. In the future, chemical companies will face tremendous changes in their energy use methods, production emissions issues, new energy and material manufacturing, and consumption habits.

Entering the stage of passive inventory replenishment has aggravated the uncertainty of the supply and demand pattern of the chemical industry. It is recommended that 2022 seize structural opportunities. A complete inventory cycle lasts about 30-45 months, including four stages of "passive destocking-active replenishment-passive replenishment-active destocking". From 2000 to early 2020, my country has completed six inventory cycles. The last (sixth) inventory cycle started in July 2016. In the context of supply-side reforms, the elimination of upstream industry capacity, and the recovery of real estate and infrastructure investment, the profits of industrial enterprises have been restored one after another, and the inventory cycle has entered an active replenishment. Inventory stage; after Q2 of 2018, it will enter the passive replenishment stage; in September 2018, it will enter the active de-stocking stage; at the end of 2019, the chemical industry (a midstream industry) inventory will enter the bottom range.

In the first quarter of 2020, due to the impact of the NCP epidemic, the mismatch between the recovery process of production and consumer demand by enterprises caused the rapid accumulation of industrial and manufacturing inventories, and a new round (the seventh round) of the inventory cycle was started. From April to October 2020, the inventory cycle is passive, and my country’s economy is recovering strongly. Starting from November 2020, it will enter the stage of active inventory replenishment and gradually transition to the stage of passive inventory replenishment. my country’s economy may enter overheating and gradually slow down. Transition to recession. According to data from the National Bureau of Statistics, as of October 2021, the finished product inventories of chemical raw materials and chemical products manufacturing, chemical fiber manufacturing, rubber and plastic products, petroleum, coal and other fuel processing industries were +25.50% and +25.50% year-on-year, respectively. 18.60%, +19.50%, and +18.70% are already seven consecutive months of positive year-on-year growth since April 2021, and the growth rate is increasing month by month.

3 Investment main line 1: Dual carbon boosts the new energy industry, and the demand for upstream chemical materials grows

Phosphorus chemical industry: Under the background of "dual control", the cost of the phosphorus chemical industry chain has risen, and the surge in LFP demand promotes the prosperity of the "wet-process phosphoric acid-iron phosphate" industry

Under the background of "dual control", the cost of the phosphorus chemical industry chain is rising, and the price of phosphorus chemical products is expected to continue to rise

Significant results have been achieved in supply-side reforms, and the “three phosphorus” remediation has helped the phosphorus chemical industry to continuously optimize the production capacity structure. In the past, under the continuous promotion of supply-side structural reforms and the policy guidance of reducing energy consumption and promoting environmental protection, the structure of my country's phosphorus chemical industry chain has been gradually adjusted. Protecting phosphate rock resources, reducing phosphate mining, reducing phosphate fertilizer exports, and controlling yellow phosphorus production capacity, etc., can effectively reduce phosphorus pollution and are the fundamental way to solve the "three phosphorus" problem. At the beginning of 2019, the Ministry of Ecology and Environment identified the investigation and remediation of the Yangtze River phosphate rock, phosphate fertilizer and phosphorus-containing pesticide manufacturing and other phosphorus chemical enterprises, and phosphogypsum storage (referred to as "Tri-Phosphorus") as the key content of the Yangtze River to reduce "phosphorus".

In retrospect, since the implementation of the remediation action, my country’s “phosphorus” reduction effect has been obvious. In 2016, the total phosphorus concentration of the nine heavily polluted rivers in the Yangtze River Economic Belt that used total phosphorus as a categorized indicator fell below the Class V standard limit in 2019. All of the V categories have reached the five categories. On the whole, the supply-side reform of the phosphorus chemical industry has achieved remarkable results. With the continued environmental protection policy, according to the statistics of Baichuan Yingfu, (1) In terms of phosphate rock, the mining volume of phosphate rock reached a peak of 144 million tons in 2016, which is about the amount of mining in 2007. 3 times the amount, the CAGR within 10 years is 12.30%. By 2017 and 2018, my country's phosphate rock output has decreased significantly, and there has been a slight downward trend in the past two years. And in order to limit the excessive outflow of phosphate rock, the state has issued policies to restrict exports;

(2) In terms of yellow phosphorus, after the normal operation of environmental protection inspections in 2016, yellow phosphorus enterprises have been subject to stricter supervision. Companies often suspend operations or even withdraw due to environmental inspections, and the yellow phosphorus industry continues to be rectified. The output of yellow phosphorus in 2019 and 2020 was 644,900 tons and 777,500 tons, respectively, and the capacity utilization rates were 46.75% and 53.37%, respectively. In 2019, Guizhou and Yunnan strengthened the regulation of yellow phosphorus enterprises, resulting in a decline in annual output. (3) In terms of phosphoric acid, the overall phosphoric acid production capacity is also showing a downward trend. On the whole, we believe that due to the attributes of upstream phosphate ore resources and the high energy consumption and high pollution of the important intermediate product yellow phosphorus, the industry’s prosperity has undergone major changes. At the same time, the industry concentration is in Wengfu, Guizhou. After the integration of the two phosphorus chemical giants, Kailin has significantly improved, and the pricing power of global phosphorus chemical products will be tilted to China. Therefore, the price of related products in the phosphorus chemical industry chain in the future is expected to continue to rise, and the industry's prosperity will continue to rise.

Under the background of "dual control", the cost of the phosphorus chemical industry chain has risen, and the iron phosphate production industry of "integration of mining, power, phosphorus and iron" will have core competitive advantages. It is optimistic about enterprises with mature purification wet-process phosphoric acid technology. Phosphoric acid railway line will become the mainstream process for preparing lithium iron phosphate at a relatively lower cost and better cost performance. The mainstream process of iron phosphate precursor includes two types: "iron nugget + phosphoric acid" and "ferrous sulfate + monoammonium phosphate" routes. At present, thermal phosphoric acid dominates the domestic phosphoric acid market, but the unit consumption of purified wet phosphoric acid to produce 1 ton of 100% P2O5 is 1.21 tons less than the standard coal of traditional thermal phosphoric acid, which is about 1/3 of the energy consumption of thermal phosphoric acid. The wet-process phosphoric acid purification process can greatly save energy and has significant economic benefits. In the future, the proportion of wet-process phosphoric acid in the production capacity of my country's phosphoric acid industry is expected to continue to rise.

In addition, the advantages of wet production of industrial grade monoammonium phosphate are also very numerous. However, the technical difficulty of purifying wet-process phosphoric acid is high, and the problem of by-product phosphogypsum is difficult to solve, which is a common problem faced by iron phosphate enterprises. my country introduced the wet-process phosphoric acid process in the 1960s. Domestic industrial phosphoric acid is mainly produced through thermal processes. In recent years, with the breakthrough of wet-process phosphoric acid purification technology, refined wet-process phosphoric acid has replaced part of thermal phosphoric acid. On the whole, most of my country's wet-process phosphoric acid is still used to produce high-concentration phosphate compound fertilizers, and only 10%-20% is used to purify and process industrial-grade phosphates.

In recent years, my country's phosphoric acid structure has been gradually adjusted. In the future, the proportion of wet-process phosphoric acid in my country's phosphoric acid industry is expected to continue to increase, which will indirectly affect the demand for yellow phosphorus. We are optimistic that my country's wet-process phosphoric acid has a broad market growth space. According to statistics from Baichuan Yingfu, my country's wet-process phosphoric acid and thermal phosphoric acid production capacity are currently 1 million tons and 2.61 million tons, respectively. Thermal phosphoric acid production capacity is gradually shrinking, and wet-process phosphoric acid production capacity is stable. In recent years, the market share of my country's wet-process phosphoric acid production capacity has gradually increased: from 2015 to 2020, the production of thermal phosphoric acid will drop from 1.97 million tons to 1.24 million tons, while the production of wet-process phosphoric acid will increase from 470,000 tons to 1.24 million tons.