Baofeng Energy invests 67.3 billion yuan in a new coal-to-olefins project; six energy projects are being advanced simultaneously

Thread Content

Baofeng Energy invests 67.3 billion yuan in a new coal-to-olefins project; six energy projects are being advanced simultaneously. Author/Source: Coal Chemical Industry 114 Forum Date: 2020-10-20 Clicks: 7 The dependence on imported polyethylene is 49%, while that for imported polypropylene is 13.1%, and these figures show an upward trend year by year. As a leading enterprise in the field of high-end coal-based new materials in China, Baofeng Energy (600989.SH) is working to expand its production capacity in order to fill the existing gaps. Over the past month, Baofeng Energy has received a total credit line of 50 billion yuan from Bank of Communications and Industrial and Commercial Bank of China. The company’s “six major projects” for 2020 are also in the process of being constructed or preparation stage. Among them, Baofeng Energy invested 67.3 billion yuan in Ordos to develop a \"high-end coal-based new materials circular economy industry\" project, which represents the company’s first expansion outside its home region. It is worth noting that Baofeng Energy has seen rapid growth in its investment in research and development in recent years. In the first half of 2020, the company invested 65.7082 million yuan in research and development expenses, a year-on-year increase of 1,245.82%, which exceeded the total R&D expenditure for the entire year of 2019. Within a month, it received credit lines of 50 billion yuan from two major banks. Baofeng Energy is a leading enterprise in China’s field of high-end coal-based new materials; it is able to produce over a hundred types of high-end chemical products using coal as a substitute for oil, thereby making significant contributions to reducing China’s reliance on imported chemical products and ensuring energy security. On October 14, the Inner Mongolia Branch of Industrial and Commercial Bank of China signed a comprehensive strategic cooperation agreement worth 30 billion yuan with Baofeng Energy. It is reported that Ordos City has attracted Baofeng Energy to invest 67.3 billion yuan in the development of a \"high-end coal-based new materials circular economy industry\" project. This is the largest single-investment project in Ordos City in recent years, as well as the project for which ICBC’s Inner Mongolia branch has granted the highest amount of financing. As planned, Baofeng Energy will invest in building a 4×1000,000 tons per year coal-to-olefins project in the Tuk Industrial Park, Wushen Banner, Ordos City. The preliminary work for this project is progressing smoothly, and the first phase of the facility, with a capacity of 2600,000 tons per year, has already been approved. In early July, Baofeng Energy issued a statement announcing that it would expand its operations for the first time in a different location by establishing a subsidiary in Inner Mongolia, which will be responsible for the production and sales of high-end coal-based new materials as well as products derived from coal gasification. Liu Yuanguan, president of Baofeng Energy, said that the establishment of a subsidiary in Inner Mongolia will further enhance the company’s scale advantages and its strategic position in the industry, thereby boosting the company’s overall profitability. According to available information, Baofeng Energy is one of the leading enterprises in China in the field of high-end coal-based new materials. Its main business involves the production of olefins from coal, with polyethylene and polypropylene being its main products; these materials serve as important foundational components for the development of the national economy. After its successful initial public offering in May 2019, the company’s overall strength was further enhanced. On September 4, Bank of Communications and Baofeng Energy signed a strategic cooperation agreement worth 20 billion yuan. The 20 billion yuan in credit line provided by Bank of Communications will effectively ensure the smooth construction of Baofeng Energy’s new projects, helping to increase the company’s olefin production capacity by 400%. This also means that, within just over a month, Baofeng Energy received credit lines totaling 50 billion yuan from two major banks, which helped the company make significant progress in upgrading its industrial chain. The semi-annual report shows that as of June 30, 2020, Baofeng Energy had a bank credit line of 11.8 billion yuan; 6.691 billion yuan of this credit line had been used, leaving 5.109 billion yuan unused ； During the reporting period, 1.619 billion yuan in bank loans were repaid, and all matured bank loans were paid off on time. Six major projects are under construction or pending construction; the Ordos project is just one of Baofeng Energy’s current “six major projects”. The semi-annual report shows that Baofeng Energy’s 500,000-ton-per-year coal-to-olefins project includes facilities such as a 1.5 million-ton-per-year coal gasification methanol plant, a 500,000-ton-per-year methanol-to-olefins plant, a 250,000-ton-per-year ethylene-vinyl acetate (EVA) plant, and a 300,000-ton-per-year polypropylene plant. The project is planned to require an investment of 12.9 billion yuan; construction will begin in August 2020, with completion and operation set for the end of 2022. Baofeng Energy’s 3 million tons per year coal coking integrated production project includes construction of a coking facility with a capacity of 3 million tons per year, a needle coke production facility with a capacity of 100,000 tons per year; an expansion of the benzene hydrogenation unit to a capacity of 120,000 tons per year; and an expansion of the tar processing unit to a capacity of 400,000 tons per year. The aforementioned project commenced construction in May 2020, with completion and operation scheduled for the end of 2021. Once the project is completed and put into operation, the company’s coke production capacity will reach 7 million tons per year, making it one of the largest independent coking enterprises in China and contributing to the development of the coke industry in the direction of cleaner and more efficient production methods. Baofeng Energy’s solar electrolysis hydrogen production, energy storage, and application demonstration project is divided into two phases. The construction scope of Phase 1 mainly includes a 100MWp photovoltaic power generation system and a hydrogen production system capable of producing 10,000 cubic meters of hydrogen per hour. The first phase of this project commenced construction in April 2020, with completion and operation scheduled for the end of 2020. The total investment in the project is 1.4 billion yuan, with an annual production capacity of 160 million standard cubic meters of hydrogen, and 80 million standard cubic meters of oxygen as a by-product. It is expected to generate annual sales revenue of 600 million yuan, while reducing coal consumption by 254,000 tons per year and cutting carbon dioxide emissions by approximately 445,000 tons per year. In addition, Baofeng Energy’s projects under construction or planned for construction include a 2.4 million tons per year coal washing plant for the Hongsi Coal Mine, as well as the Dingjialiang Coal Mine project. In 2020, the construction of Baofeng Energy’s projects also yielded significant results. Baofeng Energy’s 2.2 million tons per year methanol production project began trial operations at the end of June. It is expected to produce 1.1 million tons of methanol in the second half of the year. Based on the current price difference of around 400 yuan per ton between purchased methanol and that produced internally, this can result in cost savings of approximately 400 million yuan. The 2.4 million tons per year Hongsi Coal Mine project obtained its mining license in July, and trial production can begin in the second half of the year; the cost of coal produced locally is significantly lower than that of coal purchased from outside. R&D investment doubled in the first half of the year – why is Baofeng Energy investing so heavily in expansion? At present, the consumption of polyethylene and polypropylene in our country is experiencing rapid growth, with the rate of consumption rising significantly faster than that of production. The reliance on imports has been increasing year by year over the past five years, indicating that there is still considerable room for development in this industry. According to statistics from Wind Information and Longzhong Information, in 2019, China’s apparent consumption of polyethylene was 34.03 million tons, representing a year-on-year increase of 14.7% ； Production amounted to 17.65 million tons, a year-on-year increase of 11.2% ； Import volume was 16.66 million tons, a year-on-year increase of 18.8% ； The import dependence ratio was 49.0%, up 1.7 percentage points year-on-year. In 2019, China’s apparent consumption of polypropylene was 26.63 million tons, representing a year-on-year increase of 11.5% ； Import volume was 3.49 million tons, a year-on-year increase of 6.4%, with an import dependence ratio of 13.1%. During the five-year period from 2015 to 2019, China’s apparent consumption of polyethylene increased by 9.4% on an average per year, while production rose by 5.6% annually; imports increased by 14% per year, and the dependence on imports rose by 7.5 percentage points ； The apparent consumption of polypropylene increased by 7.3% on an annual basis, while imports also remained above 3 million tons. Some institutions predict that over the next five years, the average annual growth rate for China’s demand for polyethylene will be 6.2%, while the average annual growth rate for its demand for polypropylene will be 5.4%. Therefore, driven by the combined effects of rapid consumer demand growth and the need to fill import gaps, the industry for polyolefins still has a bright future ahead. Faced with a vast market, Baofeng Energy not only accelerates the launch of new projects but is also willing to invest in research and development. In the first half of 2020, the company invested 65.7082 million yuan in R&D expenses, a year-on-year increase of 1,245.82%. From 2017 to 2019, Baofeng Energy’s R&D expenditures were 7.9796 million yuan, 19.5678 million yuan, and 53.4205 million yuan respectively, showing a rapid growth trend. In 2020, Baofeng Energy also established the Baofeng Shanghai Research Institute, which serves as a platform for the company’s technological innovation, technical exchanges, and talent development; it has already begun to play an active role. During the reporting period, products that are in high demand in the market were developed efficiently, including polypropylene fibers, melt-blown materials, and thin-walled injection molding materials; as well as high-density polyethylene hollow materials, high-strength bimodal film materials, and specialized linear polyethylene materials for weather-resistant greenhouse films. As a result, the company’s share of specialized polyolefin products and its market influence increased significantly. In addition, Baofeng Energy has extended its industrial chain by developing specialized materials, and has initially established cooperative relationships with downstream enterprises in the fields of waterproof materials, pipes, and food packaging processing.