Boom degree differentiation, the rise of new energy

1. The prosperity of chemical products has increased, and the profitability of enterprises has increased significantly

1.1 The prosperity of the chemical sector is maintained, and sub-industries are differentiated

The growth rate of the chemical industry has declined but is still at a high level, and the sub-industries are differentiated. As of September 2, chemical (SW) and Shanghai and Shenzhen 300 fell by -10.14% and -18.18% respectively from the beginning of the year, and chemical (SW) rose by 8.05% relative to Shanghai and Shenzhen 300. 10/33 tertiary sub-industries (SW) outperformed chemical (SW), and the sub-industries with a larger increase were non-metallic materials, carbon black, other chemical fibers, inorganic salts, phosphate fertilizers and phosphorus chemicals.

(1) Performance

The prosperity of the chemical industry has been maintained since 2022. According to the classification of Shenwan Chemical Industry 2021, there are 377 listed companies in basic chemical industry, 47 listed companies in petroleum and petrochemical industry, and the total operating income of the chemical industry in 2021 reached 8,642.288 billion yuan, an increase of 33.18%. The total operating income in 2022H1 reached 5,241.806 billion yuan, up 31.63% year-on-year. In 2021, the total net profit of listed companies in the industry was 506.446 billion yuan, an increase of 149.27%, and the net profit of 2022H1 was 364.805 billion yuan, an increase of 35.07%. Affected by global local turbulence, upstream petrochemical energy prices are still high and volatile. Sustainable benefit from the high economy.

In addition to oilfield services, the six major petroleum and petrochemical sub-industries have increased their operating income and performance in 2021. The operating income of the six petrochemical sub-industries in 2021 all increased by different margins, among which the operating income of oil and gas exploitation, oil and petrochemical trade, refining and chemical sub-industries increased by 57.07%, 54.57% and 34.41%, respectively, and the net profit of the parent industry increased by more than 100% except oilfield services, mainly due to the rising prices of industrial products. The market demand is strong, and the production and sales volume have achieved substantial growth.

2022H1 Potash fertilizer, non-metallic materials, inorganic salts, organosilicon, other chemical fibers and other industries grew by more than 50%. In the 33 sub-industries of basic chemical industry, the operating income of all sub-industries in 2021 showed different levels of growth, of which the operating income of other chemical raw materials, polyurethane, spandex and other industries grew by more than 90%. Since the beginning of this year, affected by the Russian-Ukrainian war, the export of traditional fertilizer and food powers Russia and Ukraine has been restricted, the global supply and demand of fertilizer is tight, and the profit level of domestic fertilizer enterprises has been greatly improved.

In the first half of 2022, the sub-industry differentiation was obvious, and the net profit growth rate of potash fertilizer, fluorine chemical industry, phosphate fertilizer and phosphorus chemical industry, inorganic salt, and other chemical fibers was more than 100%. In 2021, 25 industries in the basic chemical industry achieved positive growth, excluding viscoses, textile chemicals, pesticides, synthetic resins, paint inks, other rubber products, adhesives and tapes, modified plastics and other industries, and most of the other chemical sub-industries achieved growth. Among them, the net profit growth rate of soda ash, phosphate fertilizer and phosphorus chemical, other plastic products, compound fertilizer, nylon, polyester industry is 14457.68%, 680.40%, 547.90%, 424.64%, 365.02%, 357.93%. 2022H1 chemical sub-industry differentiation is more obvious, the growth rate of most industries has fallen, mainly the contradiction between supply and demand of chemicals has eased, the overall operating rate and inventory of the industry have increased, product prices have returned rationally, and the growth rate of potassium fertilizer, fluorine chemical industry, phosphate fertilizer and phosphating, inorganic salts, other chemical fibers and other industries has exceeded 100%.

(2) Profitability

The profitability of the industry in the first half of 2022 is maintained. In 2021, although the domestic macro economy has been affected by the novel coronavirus epidemic, it has maintained a steady and progressive development trend on the whole. Affected by the supply shortage and the recovery of demand in the chemical industry, the prices of chemical products have generally risen sharply, and the profit level of the industry has generally improved. The gross profit margin and net profit margin of the chemical sector in 2021 were 22.81% and 11.31%, respectively, a sharp increase of 3.27 percentage points and 4.79 percentage points year-on-year, and the ROE was 15.80%, an increase of 7.32 percentage points year-on-year. 2022H1 Gross profit margin and net profit margin continued to be 22.14% and 12.14% respectively.

In the first half of 2022, the average gross profit margin of basic chemical sales, ROE, inventory turnover and accounts receivable turnover remained stable. Among the chemical sub-industries, there are 19 industries with increased sales gross profit margin in 2021, among which the industries with more year-on-year increases are potash fertilizer, silicone, spandex, nitrogen fertilizer, coal chemical industry, etc. There are 8 sub-industries with year-on-year increase in sales gross margin in 2022H1. Affected by the tight supply and demand of global fertilizers in 2022H1, the industries with more year-on-year increase are potash fertilizer, phosphate fertilizer and phosphorus chemical, other chemical fibers, fluorine chemical, inorganic salt and other industries.

1.2 The growth rate of domestic manufacturing demand has slowed down, and overseas export demand is expected to be strong

In the first half of 2022, oil prices are high and volatile, and natural gas prices are "easy to go up and difficult to go down." At the beginning of 22, the oil price soared sharply, and then it was at a high and volatile level. As of September 1, 2022, the Brent futures settlement price was 92.36 US dollars, soaring 80.8% compared with the price at the beginning of 21. The Russia-Ukraine war superposition recently "Nord Stream -1" natural gas pipeline shutdown and maintenance led to a shortage of natural gas supply in Europe, natural gas prices "easy to go up and difficult to go down", as of August 31, the price of liquefied natural gas (LNG) was 6705.50 yuan/ton.

Demand for real estate infrastructure and automobiles has been impacted, and domestic demand for chemical products has been under short-term pressure. From the perspective of the downstream real estate at the core of the chemical industry, the cumulative area of new construction and completion of housing in February 2021 reached a peak of 64.3% and 40.4%, respectively, and then was impacted by the repeated impact of the domestic epidemic, which decreased by 36.1 and 23.3% respectively by July 2022. Infrastructure investment has continued to grow year-on-year since February 2021, with the highest monthly year-on-year growth of 38.3%, and the growth rate has slowed down in the first quarter of 2022. As of July 2022, domestic automobile production decreased by 0.87% year on year due to the epidemic; Due to the uncertain impact of the Russian-Ukrainian war on global trade, the price of agricultural products has risen sharply. As of the beginning of September, the price of corn, wheat and soybean has risen by 37.63%, 26.32% and 8.18% respectively since the beginning of 21, and it is expected that the demand for agrochemical products will increase significantly; Affected by the epidemic in Shanghai, the export delivery of China's textile industry in April 2022 has decreased, and the export delivery value has rebounded comprehensively since May. As of July 2022, the export delivery value of China's textile industry was 23.810 billion yuan, an increase of 2.06%. With the gradual effective control of the domestic epidemic, the domestic manufacturing industry will return to the track of recovery, which will strongly support the rebound in domestic chemical demand.

The external demand for chemical products is expected to grow strongly and the export boom will continue. In March, the growth rate of industrial exports returned to 26.9%, as of June this year, China's industrial exports of 330.790 billion US dollars, an increase of 7.8%; In July 2022, the cumulative amount of chemical exports was 152.026 billion US dollars, up 32.4% year-on-year, and the current monthly growth rate of chemical exports returned to positive, and the monthly export amount continued to increase, and the export demand was relatively strong.

Domestic inventory passive accumulation, there is short-term inventory pressure. In 2021, the recovery of manufacturing demand and the rise in upstream raw material prices have made chemical enterprises in the stage of continuous replenishment of inventory, but due to the overseas export demand is still not fully expanded, superimposed on the repeated impact of the domestic epidemic, the passive accumulation of domestic inventory in the first half of this year, and the short-term destocking pressure is expected to be eliminated in the second half of the year.

The "steady growth" policy has been intensively introduced, and the chemical industry is expected to be the first to benefit. In 2022, in response to the current triple pressure of "demand contraction, supply shock, and expected weakening" in China, government departments have introduced a number of "steady growth" policies, all of which take infrastructure as the main starting point to drive investment. Infrastructure investment as the "ballast stone" of economic growth, will carry the banner of expanding domestic demand, promoting circulation, and stable growth, while exerting the multiplier effect to drive the development of the industrial chain, policy signals indicate that infrastructure investment will enter an accelerated period, and continue to exert force in the "steady growth", at the same time, to give certain support to the downstream manufacturing industry, including tax cuts and fee reductions and expand the scale of loans. Infrastructure investment will continue to rise to ensure the steady volume of upstream chemical products, the chemical industry is expected to be the first to benefit, can pay attention to the bottom reversal of demand in the second half of the year.

1.3 Capital expenditure increased in an orderly manner, and industrial policies accelerated the optimization of industry patterns

Chemical production capacity increased in an orderly manner, and a new round of capital expenditure began. Projects under construction in the basic chemical industry reached 157.632 billion yuan in 2014, reaching a historical high. Subsequently, the industry-wide investment in construction projects continued to decline. Since 2018, the chemical industry has entered the production expansion cycle. In 2021, the construction under construction of the basic chemical industry was 206.242 billion yuan, an increase of 29.72% year-on-year, and the capital expenditure increased significantly. The construction under construction in 2022H1 was 261.04 billion yuan, an increase of 45.65% year-on-year. The year-on-year growth rate hit a new high in recent years, a new round of capital spending began, and most chemical production capacity is currently growing in an orderly manner.

From the perspective of the fine molecule industry, the capital expenditure of most sub-industries of the chemical industry has a high growth rate, and the median growth rate of 2022H1 is 39.33%. In 2021, the construction projects of modified plastics, spandex, rubber additives, nylon, carbon black, coal chemical industry and other lines are growing rapidly, indicating that most chemical sub-industries are continuing to expand and increase capital expenditure and investment. 2022H1 Capital expenditure growth trend continued, modified plastics, silicone, rubber auxiliaries, coal chemical and other sub-industries in the construction project continued to grow, an increase of more than 100%.

PPI has declined, and chemical prices have eased but remain at historically high levels. In June this year, PPI was +6.1% year-on-year, the market consensus forecast was +5.99%, the PPI growth rate was slightly higher than market expectations. In 2021, due to the further control of the overseas epidemic, the recovery of the domestic economy, the price of industrial products showed a substantial increase, and in 2022, due to the impact of the repeated domestic epidemic and the Russia-Ukraine war, PPI dropped. The price of upstream petrochemical energy is high and volatile, and the supply and demand spear shield is prominent and other factors, and the price of chemical products has fallen but is still at a historical high.

Both the CCPI index and the prices of major chemicals have declined, but they are at historic highs. On September 2, 2022, the China Chemical Products Price Index (CCPI) closed at 5000 points, an increase of 21.01% from 4153 points at the beginning of 2021, and a decrease of 4.40% from 5187 points at the beginning of this year. In the basic chemical and petrochemical 574 main products, the price of 396 kinds of rising, the rise of calcium pantothenate, refrigerant 142b, trimethyl-chlorosilane, methylnaphthalene, formic acid, etc., the main chemical prices have fallen but are still at a historical high.

The supply side logic of the chemical industry extends from environmental protection to safety, and safety policies continue to restrict supply. The strict policy will increase the pressure of compliance production and environmental protection equipment investment pressure, and the strong supervision of environmental protection penalties will make non-compliant enterprises shut down, or even shut down, to optimize the structure of industry participants, eliminate backward production capacity. Industrial policy may lead to a decline in the scale of industry operations in the short term, but in the long run, due to the withdrawal of some substandard small and medium-sized enterprises, Accelerate the industry clearance, the industry concentration is further enhanced, the competitive pattern is further optimized, at the same time, because the top enterprises themselves have scale advantages, it is expected that the trend of "strong constant strong" will gradually form.

2. The supply and demand pattern of basic chemical industry is improving, and the high economy is expected to continue

2.1 Synthetic biology: Bio-based materials are expected to usher in a period of demand explosion

Under the promotion of the two-carbon policy, bio-based materials are expected to obtain a high-speed growth window. Under the goal of carbon neutrality, stone-based materials may face subversive impacts in some areas, and low-energy products or industries are expected to get a longer growth window. With the decrease in the cost of bio-based materials and the breakthrough of bio-based materials of "non-food" raw materials, the realization of "not competing with people for food and not competing with food for land" in bio-manufacturing scale, bio-based materials are expected to usher in an outbreak of demand, and the domestic replacement process of new materials is accelerated, by strengthening the construction of high-throughput research and development facilities of the whole industrial chain of synthetic biology. Select projects with relative competitiveness, forward-looking, social significance and commercial value for systematic research and development, and will become a high-boom track with higher demand than expected in the future.

The synthetic biology project has been strongly supported by the government, and the scientific research achievements of the industry have been continuously promoted. Recently, the Ministry of Science and Technology issued the national key research and development plan "synthetic biology" key special 2022 annual project declaration guide notice, according to the introduction of the 2022 annual declaration guide, this "synthetic biology" key special, It will be deployed around the three tasks of "combining artificial factors into high-version chassis cells", "artificial components and gene circuits", and "functional synthetic biology system", and intends to support 8 projects, including 2 linkage projects of the ministry and city, and intends to arrange the budget estimate of 146 million yuan from the state. At the same time, the special project also intends to support 10 young scientists projects, including 4 linkage projects of ministries and cities, and plans to allocate 40 million yuan of state funding estimates, 4 million yuan for each project. That is, a total of 18 projects, the state appropriated 186 million yuan. The scope of the synthetic biology key project covers research systems (single cell, multicellular, cell-free), technical dimensions (functional elements, gene circuits, life systems) and application scenarios (manufacturing, medical, food, agriculture, etc.), with a view to realizing major scientific problems for the creation of synthetic organisms. Focusing on the major needs of material transformation, ecological environmental protection, medical level improvement, and agricultural production increase, we will break through the basic scientific problems of synthetic biology, build several practical major artificial biological systems, innovate cutting-edge synthetic biological technologies, and make major scientific and technological support for the overall goal of promoting the innovative development of the biological industry and the green growth of the economy.

In the first half of 2022, the revenue growth rate of synthetic biology industry was maintained. There are few listed companies in the synthetic biology industry in China, mainly including Kesai Biology, Huashengwu, Angel Yeast, Novozan, BGI, Oriental Shenghong, etc. In 2021, the synthetic biology sector achieved a operating income of 74.184 billion yuan, an increase of 69.93% over the same period last year, and achieved a net profit of 8.768 billion yuan. With a year-on-year growth of 69.31%, the gross profit margin was 24.51%, a decrease of 2.59 percentage points. 2022H1 achieved operating income of 43,031 billion yuan, an increase of 60.62%, achieved net profit of 3.989 billion yuan, an increase of 3.84%, and achieved gross profit margin

Demand is at a boom low, and subsequent polyurethane prices are expected to recover. Due to the deterioration of the situation in Russia and Ukraine, the price of crude oil rose significantly in the first half of 2022, and the upstream raw materials of the polyurethane sector rose significantly. In the first half of 2022, the average price of pure benzene was 8,461 yuan/ton, up 30.15% year-on-year, and the average price of 5,000 kcal coal was 1,090 yuan/ton, up 52.23% year-on-year, and crude oil was currently at a high and volatile level. The downstream polyurethane demand is in the off-season, as of the beginning of September, the price spread of pure MDI reached 11.72% historical quantile, the polymer MDI reached 8.42% historical quantile, and the TDI reached 16.72% historical quantile. TDI is affected by the supply shortage, and the price has rebounded from the bottom, and the prosperity of TDI is expected to improve. Unlike traditional commodities, MDI has obvious technical barriers and monopoly attributes. We believe that there is little room for the MDI spread to fall, and the MDI price is expected to be repaired with the marginal improvement of domestic demand.

In 2021, the overall performance of the polyurethane sector was brilliant, the overall sector achieved operating income of 157.958 billion yuan, an increase of 93.32%, and achieved a net profit of 25.362 billion yuan, an increase of 135.08%. The entire polyurethane sector achieved positive growth in operating income, but the profit differentiation was serious. The net profit of polyurethane upstream to mother represented by Wanhua Chemical and Cangzhou Dahua increased by 145.47% and 496.39%, respectively, while the performance of polyurethane downstream companies was average. In the first half of 2022, due to the double impact of rising crude oil and the epidemic on demand, the overall revenue growth of the polyurethane sector slowed down, gross margin declined year-on-year, the overall operating income of the sector was 96.116 billion yuan, an increase of 30.82%, and the net profit of the mother was 10.750 billion yuan, a decrease of 23.19%. From the point of view of specific companies, the net profit of the mother, the polyurethane plate has declined to different degrees, of which Wanhua Chemical fell 23.26% year-on-year, and Cangzhou Dahua fell 8.9% year-on-year.

2.3 Catalyst: Technological innovation breaks industry barriers, and domestic substitution accelerates

The full implementation of National six standards accelerates the iteration of vehicle renewal, and the market demand for exhaust gas catalysts is broad. At present, the world has formed the European Union, the United States, Japan three major automobile emission standards system, China's automobile emission standards mainly continue the European Union emission standards framework. The national six standard is equivalent to the excessive standard of the national five to the national six standard, and the national six standard is the real meaning of the national six standard. From July 1, 2019, China's heavy natural vehicles have taken the lead in implementing the national six a emission standard nationwide, and the national six b emission standard will be implemented on January 1, 2021. All heavy duty vehicles will meet the National VI b standard by January 1, 2023, and all light duty vehicles will meet the National VI b standard by July 1, 2023. In addition, China's national VI b standard is also one of the most stringent emission standards in the world at present, from the domestic level, the heavy truck, relative to the national V standard, the limit value of the national VI standard is 460/, compared with the national V down 77%, the light truck, the limit value of the national VI is 35/, compared with the national V down 42%; From the global level, the international system of standards, the Euro 6 standard for diesel engine emissions of nitrogen oxides limit of 80/, loose in our country's six standards, the United States 3 for nitrogen oxide emissions limit of 12.4/, nearly 65% lower than our country's six standards. In the future, diesel vehicles that do not meet the national six emission standards will withdraw from the market step by step, and this part of the market space will be carried by diesel vehicles that meet the national six emission standards, so the new diesel vehicles have a strong demand for molecular sieve exhaust gas purification catalysts, and overall, the automotive exhaust catalyst market space is huge.

The tail gas catalyst market industry concentration is high, international enterprises monopolize the market, domestic enterprises strive to catch up, and domestic substitution is accelerated. According to the research report released by Markets and Markets, the world's major pollution emission control catalyst manufacturers include Germany's BASF, the United Kingdom's Johnson Matthey, Belgium's Meike, Japan's Kotra, and China's platinum subsidiary Guiyan Catalysis and Zhongzi Technology. Global environmental catalyst market concentration is high, according to the China Technology prospectus, BASF, Johnson Matthey, Grace technology three international giants accounted for more than 70% of the global share, China's main environmental catalyst manufacturers include China catalyst, China technology, Wanrun shares and so on. Due to the high technical threshold of environmental protection catalyst, and the history of China's exhaust emission standards lag behind the United States, Japan, the European Union and other emission standards, so that the technology and product reserves of foreign giants are often ahead of domestic emission standards a generation or more, and the implementation of strict technical blockade. However, with the rapid upgrading of China's emission regulations from following foreign advanced standards to synchronous or even ahead of foreign advanced standards, while after a long period of technology accumulation and product catch-up, the gap between domestic catalyst manufacturers' technology and products and foreign giants has gradually narrowed. The performance of some products of some domestic manufacturers has been able to match or even exceed the similar products of foreign giants, and has been more widely used in the products of China's leading engine manufacturers. At present, the market competitiveness of domestic environmental protection catalyst manufacturers has gradually increased, and the localization process of environmental protection catalyst market will gradually accelerate.

The catalyst industry has been highly valued by governments at all levels and the key support of national industrial policies. The rapid changes in the competitive pattern of the international market, as well as the increasing awareness of the ecological environment and health of residents, have put forward higher requirements for the sustainable development of the industry, energy conservation and emission reduction, low-end production capacity and industrial upgrading. The state has successively introduced a number of policies to enhance the strategic position of the catalyst industry and encourage the development and innovation of the catalyst industry. Industrial policies such as the Guidance Catalogue for Industrial Structure Adjustment (2019 table), the Development Guide for New Materials Industry, and the Special Plan for National Basic Research in the 13th Five-Year Plan have provided clear and broad market prospects for the development of the catalyst industry.

2.4 Phosphorus chemical: Relying on the advantages of integration, open the second growth curve of new energy materials

Relying on the integrated cost advantage, phosphorus chemical has entered into new energy materials. The prosperity of the main products of phosphorus chemical industry continues to rise, and the traditional business demand such as phosphate fertilizer is relatively rigid, and the profit has achieved substantial growth, which is a solid shield for the development of the company. In 2021, the explosive growth of new energy vehicles, the annual global sales of new energy vehicles as high as 6.75 million, an increase of 108%, the penetration rate reached 8.3%, 4.1 percentage points higher than 20 years.