Development requirements of chemical industry

Valuation methods for chemical industry can be selected: P/ E valuation method, PEG valuation method, price-to-book valuation method, price-to-cash ratio valuation method, P/S price-to-sales valuation method, EV/Sales valuation method, RNAV revaluation net asset valuation method, EV/EBITDA valuation method, DDM valuation method, DCF discounted cash flow valuation method, NAV net asset value valuation method, etc.

Industry development and driving mechanism and risk management

China Petroleum and Chemical Industry Federation released the 2019 China Petroleum and Chemical Industry Economic Operation Report, showing that China has become a major oil and chemical country in the world, accounting for 40% of the global market share. The petroleum and petrochemical industry can be divided into three major sectors: oil and gas exploration and development production, petroleum refining and oil product sales, and petrochemical product production and sales. The existing and operating enterprises in China's petrochemical industry are mainly concentrated in the first echelon of Shandong (286,800) and Jiangsu (250,000), accounting for 6.45% of the 31 provinces, regions and municipalities in the country; The second echelon, with more than 100,000 enterprises but less than 200,000, is represented by 7 provinces and municipalities, including Guangdong, Shaanxi, Anhui and Hubei, accounting for 22.58%. Last is the third echelon, the number of enterprises under 100,000 to Shanghai, Zhejiang, Jiangxi, Fujian and other 22 provinces, regions and municipalities, accounting for 70.97%.

From the perspective of industrial income structure, the petroleum and chemical industry can be divided into chemical industry, refining industry and oil and gas extraction industry. In 2019, the operating income of China's petroleum and chemical industry was 12.27 trillion yuan, an increase of 1.3% year-on-year, among which, the operating income of the chemical industry was 6.89 trillion yuan, a decrease of 0.9% year-on-year, and the operating income of the refining industry was 4.02 trillion yuan, an increase of 4.6%, a growth rate of 1.6 percentage points; The operating income of the oil and natural gas extraction industry was 1.10 trillion yuan, up by 2.4 percent or 0.6 percentage points. China's petroleum and chemical industry is still dominated by the chemical industry and refining industry, with the proportion of the two reaching 89.55% in the first half of 2020.

Industry development and drivers

Industry risk analysis and risk management

(1) Frequent occurrence of safety problems; According to the "Hazardous Chemicals Catalogue" jointly issued by the Ministry of Industry and Information Technology and the Ministry of Public Security, basic organic chemicals are listed here, with toxic, corrosive, explosive, combustion, combustion and other properties, can cause great harm to the human body, facilities and the environment. In August 2014, the National People's Congress amended the Production Safety Law of the People's Republic of China, specifically pointing out that units engaged in the production, operation and transportation of dangerous goods should be specially equipped with production safety management personnel to ensure the safety of personnel and property throughout the production process.

(2) Price fluctuation of raw materials; The basic organic chemical industry takes coal, oil and natural gas as the main raw materials, and its price determines the economic benefits of the production and operation of the enterprise. When mineral energy prices rise, the price rise of basic organic chemical products generally lags behind the 16 report No. [19RI0460] market, and the corresponding production enterprises have cost disadvantages, and the profits of enterprises will decrease accordingly. On the contrary, when mineral energy prices are low, organic chemical enterprises need to speed up the production and sales process to avoid the risk of inventory impairment. Therefore, the basic organic chemical industry is more affected by cyclical fluctuations in raw material prices.

(3) Environmental protection issues have received much attention; In the process of production and operation of basic organic chemical enterprises, a lot of harmful substances such as waste gas, waste water and solid waste are usually produced. If such harmful substances are not restricted and discharged at will, they will pollute the atmosphere, rivers and land, leading to serious environmental problems.

3.3 Competition Analysis

Chemical industry competition From a worldwide perspective, the fine chemical industry has formed a monopoly competition pattern represented by Bayer and BASF in Germany and DuPont and Dow Chemical in the United States. In recent years, foreign companies such as Bayer and DuPont are actively integrating related industries and have acquired fine chemical industries such as pharmaceuticals, pesticides and polymers. Dupont, Dow Chemical, Bayer, BASF, ExxonMobil, Shell, Evonik Industries and other foreign companies have invested in the field of fine chemical industry in China. Such enterprises are mainly located in the middle and downstream of the industry in China, while the company is in the upstream link of the industrial chain, and tends to the production and sales of chemical intermediates. At present, the number of domestic enterprises producing aromatic ketones is medium, most enterprises produce small scale, and most can only produce part of the product series of aromatic ketones, such enterprises have a single product line and poor product quality stability; The concentration of fine chemical industry in China is low, many enterprises are scattered, and the production is mainly small and medium-sized private enterprises.

Porter's five forces

(1) Bargaining power of suppliers

Oil and gas is the upstream enterprise of the chemical industry, and the raw materials of the chemical industry are mainly oil and gas, and oil and gas are scarce resources. At present, China's domestic oil and natural gas supply is short, and it needs a large amount of imported crude oil and natural gas every year, and the import dependence is high, so the energy producing countries have a strong price control ability of oil and natural gas, and the upstream suppliers of the chemical industry have a relatively strong bargaining power.

(2) The bargaining power of downstream customers is enhanced

The downstream enterprises of the chemical industry mainly include the automobile industry, the textile industry, agriculture and residents' daily life chemicals. Due to the relatively mature technology of the chemical industry, the difference between the products of different enterprises is very small, the product market competition is very fierce, in 2012 at home and abroad economic downturn situation, domestic and foreign demand for chemical industry products have declined to varying degrees. Therefore, the selectivity of downstream customers for chemical enterprise products increases, and their bargaining power is correspondingly enhanced.

(3) The threat of potential entrants to the industry

The chemical industry has low barriers to entry, and small enterprises account for the majority of the industry characteristics, which determines that there are more equal competitors in the chemical industry and a wide range of competition participants; The chemical industry technology is relatively mature, the market is also relatively mature, the product demand growth is slow, competitors are easy to use price reduction and other means of promotion, the conversion cost of users is very low. Therefore, the threat of potential entrants in the industry is greater.

(4) The threat of substitutes in the chemical industry

On the whole, the possibility of chemical raw materials and chemical products manufacturing products being replaced by other industry products is very small, the main replacement is the replacement of different process technology routes in the production of the same product. For example, in the production process of PVC, there have always been two production technologies: calcium carbide method and ethylene method. The Middle East is rich in oil and gas resources, which are mainly produced by ethylene process.

(5) Fierce competition in the industry

According to Bain industrial concentration classification standards, China's chemical raw materials and chemical products manufacturing industry as a whole is a completely competitive industry. However, the competitive situation in a single fine molecule industry may be different. China's top ten enterprises in PVC, soda ash, dye and tire industries accounted for 52%, 60%, 80% and 70% of total output respectively. The above subdivided industries are already oligopolistic competitive industries.

(1) Sinopec [600028.SH,http://0386.HK]] is a joint-stock enterprise with integration of upper, middle and lower reaches, prominent main industries of petroleum and petrochemical industry, complete sales network and listing at home and abroad. The company is one of the largest integrated energy and chemical companies in China, mainly engaged in oil and gas exploration and development, pipeline transportation and sales; Petroleum refining, petrochemical, coal chemical, chemical fiber and other chemical production and product sales, storage and transportation; Import and export of petroleum, natural gas, petroleum products, petrochemical and other chemical products and other commodities and technologies, and import and export agent business; Research, development and application of technology and information. Sinopec is a big oil and gas producer in China; Refining capacity ranked first in China; It has a complete sales network of refined oil products in China and is the largest supplier of refined oil products in China. Ethylene production capacity ranks first in China, and a relatively complete chemical product marketing network has been built.

(2) Wanhua Chemical [600309.SH] business covers MDI, TDI, polyether polyols and other polyurethane industrial cluster, acrylic and ester, propylene oxide and other petrochemical industrial cluster, water-based PUD, PA emulsion, TPU, ADI series and other functional chemicals and materials industrial cluster. The industries we serve mainly include: home life, sports and leisure, automobile transportation, construction industry and electronic appliances. In the field of production, the domestic production bases in Yantai, Ningbo, Zhuhai and other places operate stably. In the field of research and development, R&D centers in Yantai, Beijing, Foshan, Shanghai and other places have gradually taken shape, and the North American technology center has been officially put into use in Houston. In addition, Wanhua Chemical has established companies and offices in Europe, the United States, Japan and other countries and regions.

(3) Hengli Petrochemical [600346.SH] : The company originated in Wujiang, Suzhou, Suzhou, Nantong, Suqian, Dalian, Comfort, Huizhou and other six production bases, Hengli Petrochemical based on the main business, adhere to the development of the whole industry chain, is committed to creating "crude oil - aromatics, olefin - PTA, ethylene glycol - PET - civil silk, industrial silk, polyester film, engineering plastics and other new materials" of the world's whole industry chain development. With 20 million tons of petroleum refining projects, is the world's largest single unit and the largest capacity of PTA manufacturers, the existing capacity of 11.6 million tons, 5 million tons under construction, but also China's polyester chemical fiber field scale, high-end, differentiated leader.

(4) Rongsheng Petrochemical [002493.SZ] : The company is a large-scale direct spinning polyester filament production enterprise, mainly engaged in PTA, polyester fiber related products production and sales, is one of the national petrochemical and chemical fiber industry leading enterprises. The company has formed an annual production capacity of more than 10 million tons of PTA, 1 million tons of polyester, 1 million tons of polyester spinning (FDY, POY), and 450,000 tons of polyester elastic yarn (DTY). After more than ten years of accumulation, the current production scale, raw material consumption and product quality of Rongsheng Polyester and spinning and elastic supporting projects are in the forefront of domestic peers, and comprehensive energy consumption is at the international advanced level.

3.5 Major Global competitors

The 2020 Global Chemical 50 list shows that the top 50 companies on the list had chemical sales of $855.6 billion in 2019, down $71.2 billion from $926.8 billion in 2018. The threshold for the top 50 global chemical companies to list in 2020 is $7 billion, $200 million lower than the $7.2 billion threshold for the 2019 list. This shows that global chemical economic activity is slowing down, and the sales and profits of major chemical companies are affected.

From the perspective of regional distribution, the United States has 10 companies on the list of chemical companies, ranking first among all countries, followed by Japan with 8 companies on the list, China and Germany each have 6 companies on the list, South Korea has 4 companies on the list, and the United Kingdom, Belgium and France are 2.

Major non-Chinese companies in the world include LINDE[LIN.N], Shandwick [SHW.N], ECOLAB [ECL.N], PPG Industries [PPG.N], LyondellBasell Industries [LYB.N], International Flavors [IF.N], NUTRIEN[NTR.N], Celannis [CE.N] Linde [LIN.DF], BASF [BAS.DF], DU PONT[DUP.DF], SYMRISE[SY1.DF], Evonik Industries [EVK.DF], Air Liquide [0NWF.L], KONINKLIJKE DSM[0NPP.L], SYMRISE ORD SHS[0G6T.L], EVONIK INDUSTRIES[0QDS.L], NOVOZYMES B ORD[0Q4U.L], Shinetsu Chemical Industry [4063.T], Asahi Kasei [3407.T], Nitto Denko [6988.T], METHANEX[MX.TO], NUTRIEN[NTR.TO], Air Liquide Group [AI.PA], LG CHEM[051910.KS], etc.

(1) LINDE[LIN.N] is an Irish-registered multinational chemical company formed by the merger of Linde AG (founded 1879) and Praxair of the United States. Linde plc provides innovative and sustainable solutions to its customers and creates long-term value for all stakeholders. It is the world's largest industrial gases company by market share and revenue. The Linde Group has two main business areas: gas (industrial gases and medical gases) and engineering. In the industrial gases sector, the group trades under a range of well-known brands including Linde, AGA, BOC, TIG, MOX, Afrox and PanGas.

(2) BASF [BASFY.OO] : The world's largest chemical producer, serving at least 300,000 customers worldwide. Basf operates in five segments: Chemicals, Performance Products, Oil and Gas, Functional Materials and Solutions, and Agricultural Solutions. The Agricultural Solutions segment's products include insecticides, fungicides and herbicides. The Functional Materials and Solutions segment offers industrial coatings, catalysts, and battery materials. The Performance Products segment produces food additives, paper, and products for the oil and gas industry, as well as dispersions and pigments. The oil and gas sector deals with exploration and production. The Chemicals segment provides plasticizers, solvents and electronic chemicals to the market.

(3) DowDuPont (DowDuPont), in 2017, DuPont and Dow Chemical Company merged to form DowDuPont (DowDuPont), with the intention of eventually splitting into three independent publicly traded companies: Corteva Agriscience focused on agriculture; Dow focuses on materials science; Dupont focuses on specialty products. The dissolution of DowDuPont was completed on June 1, 2019.