Look for investment opportunities in the chemical industry from the perspective of materials application

1. Looking for investment opportunities in the chemical industry from the perspective of material application

In the current "double carbon" policy + new energy background, from the perspective of material application, degradable plastics, biomass, carbon capture and other materials are expected to usher in a period of development opportunities. We believe that the development of green, environmentally friendly degradable materials is conducive to reducing carbon emissions and the preservation of the natural world, promoting the carbon cycle, while protecting the environment.

1.1 PVA is a degradable material whose application field has not yet been fully explored

PVA itself has the properties of degradable materials. Polyvinyl alcohol (PVA) is a widely used water-soluble polymer, can quickly dissolve in water, forming a stable colloid, its performance between plastic and rubber, characterized by strong adhesion, good densification, high crystallinity, in addition to being used as fiber raw materials, It is also widely used in the production of binders, coatings, paper processing agents, emulsifiers, dispersants and films. On the other hand, PVA is the only vinyl polymer that can be used by bacteria as a carbon source and energy. Under the action of bacteria and enzymes, it can degrade 75% in 46 days. It is a biodegradable polymer material that can be mass-produced by non-petroleum routes with low cost and excellent oil, solvent and gas barrier resistance. It has unique advantages in food and drug packaging. In the context of carbon neutrality, degradable materials have broad application prospects. We believe that PVA is a material whose application field has not been fully explored, and it has broad opportunities for future development.

The PVA industry reshuffle ended, and the industry fundamentals continued to improve. According to our previous statistics, domestic PVA enterprises put into production about 370,000 tons before 2000, put into production about 480,000 tons from 2000 to 2012, and put into production about 400,000 tons after 2012. At present, the nominal production capacity of the industry has reached 1.206 million tons, and from our industry research, in fact, the effective production capacity of the industry is only about 800,000 tons/year, and there are more ineffective production capacity in the industry, especially the production capacity that was put into operation before 2000, which has been shut down during the period of low profitability in the industry, and even some production capacity has been shut down for a long time. In addition, in recent years, the domestic central and eastern PVA producers have also shut down or transformed to the downstream because of their high costs, and the domestic PVA industry has been in a new situation after reshuffling.

1.2. The dual-carbon policy is expected to bring about the restructuring of the chemical industry, and the demand for biodiesel is expected to open a new round of growth

The Red II target is favorable for the development of biofuels, and the demand for biodiesel is expected to increase. According to the revised European Union Renewable Energy Directive (Red II), Red II specifies the feedstock types of advanced biofuels (including Part A and Part B), and in some EU countries such as the Netherlands and the United Kingdom, advanced biofuels enjoy a preferential policy of double counting of added quantities. Waste resources (such as catering waste oil, animal waste oil, palm acid oil, etc.), among which the high fatty acid content of catering waste oil, palmitate oil raw material Brown grease belongs to Part A type, and the low fatty acid content of catering waste oil raw material UCO belongs to Part B type, all of which belong to the raw materials of advanced biofuels.

Specifically, the overall target set by Red II for the share of renewables in the EU's total final energy consumption by 2030 is 32%; But according to the latest EU proposal of July 20, 2021, the target share is proposed to rise from 32% to 40% by 2030. Red II greenhouse gas reduction targets: 40% reduction in greenhouse gas emissions by 2030 and net zero emissions by 2050; But according to the latest proposal of July 20, 2021, the reduction target will be increased from the current 40 percent to 55 percent by 2030. Through the modification of the new proposal, it can be seen that the EU is equally determined to reduce carbon emissions, and the demand for biodiesel is expected to increase significantly.

The "new energy +" policy is expected to bring about the restructuring of the chemical industry, and China's biodiesel consumption market is expected to enter a new round of growth. In the context of the continuous promotion of the "double carbon" policy, reducing carbon emissions from the material application side is also the general trend, it is understood that each ton of biodiesel can achieve 2.83 tons of carbon emission reduction, biodiesel as a renewable low-carbon clean energy source, is expected to play an important role in the carbon emission reduction in China's fuel field. At the same time, China is implementing the "national system of garbage classification", which will also bring the rigid demand for waste oil disposal. According to China's 2025 urban waste production of 300 million tons, 30% of wet waste separation, waste oil treatment device accounted for about 3% of the weight of wet waste, waste classification alone is expected to add about 2.7 million tons of waste oil treatment demand. We are optimistic about the restructuring of the chemical industry driven by the current policy, and we believe that China's biodiesel consumption market is expected to usher in a new round of growth window period.