Core view
New explosive points of demand: the traditional demand for adipic acid is mainly used to produce polyurethane products, and the total consumption and export volume in China is about 1.7 million tons. However, the two new demand points of PBAT and nylon 66 will soon start to significantly boost the demand for adipic acid. Since 2020, the national policy has rapidly promoted the development of degradable plastic PBAT. The capacity under construction and planning has reached 10 million tons. The bottleneck of large-scale supply will soon be transferred to BDO. With the continuous production of new BDO capacity in the second half of 22 years, PBAT will further increase its capacity and stimulate the demand for adipic acid. Nylon 66 has excellent performance, but China’s output has been low, mainly because the production technology of core raw material adiponitrile is monopolized by overseas enterprises. However, with the efforts of Huafeng, China National Chemical Engineering Co.Ltd(601117) and other enterprises, the breakthrough of adiponitrile technology has emerged, and the demand for adipic acid will soon be driven through the conduction process of adiponitrile nylon 66 hexanoic acid. We believe that the demand for adipic acid is expected to double in the next two years.
It is difficult to increase the supply: the production capacity of adipic acid in China is 2.75 million tons. From the source of raw hydrogen, it can be divided into three types: coal chemical industry, coke oven gas and natural gas hydrogen production. However, in the context of double carbon target, the carbon emission of traditional hydrogen production is too large, which will seriously restrict the possibility of adipic acid capacity expansion in the future. Although the by-product hydrogen of light hydrocarbon chemical industry is very suitable for the production of chemicals, the total amount is relatively scarce. In 2021, the market of hydrogen consuming chemicals such as propylene oxide, acrylonitrile and BDO was significantly better than that of adipic acid, so that China’s light hydrocarbon chemical enterprises used their by-product hydrogen resources for these products and ignored the potential of adipic acid. According to statistics, at present, only Huafeng and Hengli have a total capacity of 700000 tons of adipic acid projects planned in China, which can not meet the requirements of future demand. Therefore, we judge that adipic acid will usher in a long-term boom.
The profit ceiling is very high: we believe that the price center of adipic acid in the future is likely to be similar to the current BDO. By analyzing the market of PBAT and BDO in this round, we can see that the price and profit of PBAT determine the price of BDO. When the supply of BDO is the most tense, the gross profit of PBAT industry is almost zero. We judge that the price center of BDO is about 14000 yuan / ton after large-scale production capacity. According to the PBAT price of 20000 yuan / ton and the gross profit margin of 15%, the price of adipic acid is expected to reach 17000 yuan / ton, and the price difference is expected to reach 10000 yuan / ton when the cost remains unchanged. Moreover, considering the dynamic balance process of output and price, the price and profit probability of adipic acid will exceed the calculated central level
Investment proposal and investment object
We are optimistic about the future price and profit of adipic acid. We suggest to pay attention to Shandong Hualu-Hengsheng Chemical Co.Ltd(600426) (600426, buy) and Hengli Petrochemical Co.Ltd(600346) (600346, buy). The former has a capacity of 360000 tons of adipic acid and has a certain capacity of expansion; The latter plans to build a new capacity of 300000 tons of adipic acid.
Risk tips
China’s policy changes, the project schedule is not in line with expectations, the rise of adipic acid price affects the downstream demand, the sharp fluctuation of oil price and the change of assumptions affect the calculation results.
