Wanhua Chemical’s MDI listing price in June is 14,000 yuan per ton (up 500 yuan per ton from May)
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The listed price of MDI in the Chinese market for June is 14,000 yuan per ton in the aggregated MDI distribution market (an increase of 500 yuan per ton compared to May), and 14,500 yuan per ton in the direct sales market (also an increase of 500 yuan per ton compared to May)； The listed price for pure MDI is 16,500 yuan per ton (an increase of 700 yuan per ton compared to May). Wanhua Chemical currently has an MDI production capacity of 2.1 million tons, accounting for 26% of the global total, making it the world’s largest MDI supplier. MDI is a commonly used raw material in the chemical industry, primarily used to produce polymers of MDI, which have a wide range of applications. Polymerized MDI has thermal insulation properties, and it is an important material used for creating insulating or sealing layers inside refrigerators, washing machines, and water heaters. The distribution/direct sales price of polymeric MDI has remained at 13,500/14,000 yuan per ton for 5 months, from January this year to the present. In addition to the impact of the Spring Festival, the pandemic caused domestic and foreign demand to be hit successively from February to April, with market sentiment and downstream demand both reaching rock bottom. The current supply and demand landscape is showing positive trends: on the demand side, the progression of the pandemic overseas is expected to have reached a plateau, and inventory levels of downstream products have bottomed out, suggesting a recovery in overseas demand in the future. At the same time, domestic demand has recovered significantly as production activities have resumed, and with the arrival of the peak season in downstream industries, an increase in demand is expected ； On the supply side, there have been frequent maintenance activities in the industry recently, resulting in limited market supply. The distillation units at BASF and Huntsman in Shanghai, in the Asia-Pacific region, as well as those at Tokuyo in Japan, have all been shut down for maintenance. Production volumes at Covestro in Shanghai and BASF in Chongqing are relatively low. Overseas, companies such as Dow are also operating at reduced capacity due to the pandemic and logistics issues, resulting in a tight supply of goods in the market.
With strong demand on the supply side, there have been frequent maintenance activities in the industry recently, resulting in limited market supply. The distillation units at BASF and Huntsman in Shanghai, in the Asia-Pacific region, as well as those at Tokuyo in Japan, have all been shut down for maintenance. Production volumes at Covestro in Shanghai and BASF in Chongqing are relatively low. Overseas, companies such as Dow are also operating at reduced capacity due to the pandemic and logistics issues, resulting in a tight supply of goods in the market.
(1) The advantages of coal gasification enable Wanhua to obtain hydrogen at low cost. Hydrogen is required in Wanhua’s MDI synthesis process, and all of this hydrogen is produced internally through coal gasification, using coal as the raw material. Since Wanhua has obtained coal quotas, other domestic producers mainly use natural gas to produce hydrogen. In terms of coal costs, there must be a certain competitive advantage. Furthermore, Pingtouge believes that regulations regarding coal use will continue to become stricter in the future, mainly due to environmental concerns. In comparison, Wanhua’s coal-based hydrogen production will have a leading advantage within the industry. What is the actual difference in costs between hydrogen produced from coal and hydrogen produced from natural gas? Based on the coal prices in Shandong, the cost of producing hydrogen from coal is around 10,440 yuan per ton, while the cost of producing hydrogen from natural gas is 13,000 yuan per ton (calculated using Shanghai’s natural gas price of 2.5 yuan per cubic meter). Therefore, in terms of the cost per ton of hydrogen, Wanhua faces a difference of 2,560 yuan. In addition to hydrogen produced from coal, Wanhua can also utilize the hydrogen generated as a by-product of its PDH and chlor-alkali plants. According to calculations by Pingtouge, 0.038 tons of hydrogen are produced per ton of PDH, while approximately 280 cubic meters of hydrogen (equivalent to about 0.025 tons) are generated per ton of caustic soda. This cost is very low; Rockchip estimates it to be around 3,000 yuan per ton. In summary, Wanhua MDI consumes approximately 180,000 tons of hydrogen per year; it is assumed that coal gasification provides 130,000 tons of hydrogen, with 50,000 tons generated as a by-product. Wanhua has a cost advantage over its competitors in terms of hydrogen production of around 830 million yuan, resulting in savings of 420 yuan per ton.
(2) The lower initial investments have resulted in reduced depreciation costs for Wanhua’s MDI plants. The Wanhua Ningbo and Bajiao plants utilize globally advanced processes developed independently, which is why the investment required for Wanhua’s MDI plants is lower compared to that of its competitors. For example, the investment in Wanhua’s Ningbo Phase II project is 2.4 billion yuan, with a production capacity of 300,000 tons; thus, the investment per ton is approximately 8,000 yuan. In comparison, the BASF project in Chongqing involves an investment of 8 billion yuan, with a production capacity of 400,000 tons; the investment per ton is approximately 20,000 yuan ； The Shanghai Bayer project involves an investment of 5 billion yuan, with a production capacity of 350,000 tons; the investment per ton is approximately 14,000 yuan. In comparison, Wanhua’s project investment is much lower than that of other companies. ThinkCore believes that Wanhua’s investment advantages will become even more evident in the future. Currently, the depreciation and amortization cost per ton for Wanhua Polyurethanes is around 700 yuan per ton (based on production volume), while for other foreign-owned MDI projects in China, this figure is approximately 1,000–1,500 yuan per ton. In the future, Wanhua will expand on its existing industrial parks; the investment required for adding 800,000 tons of new production capacity is only 2,000–3,000 yuan per ton, meaning the investment intensity is only 10%-20% that of other new production projects. As a result, the advantages associated with depreciation and amortization will become even more significant in the future. Assuming that all 800,000 tons of production capacity are utilized in the future, Pingtouge expects Wanhua’s depreciation per ton to drop to 500 yuan, thereby making its cost advantage even more significant.
(3) The integrated advantages brought to Wanhua by a complete industrial chain ecosystem: Advantage in steam costs: Wanhua’s MDI production facilities are equipped with boilers that generate steam using coal as a raw material. Assuming that 94.7 kg of standard coal is required per ton of steam, and considering a steam boiler efficiency of 70%, the actual coal consumption is 135 kg of standard coal per ton of steam. Based on the coal prices in Shandong, the cost of steam needed to produce 1 ton of MDI is approximately 150 yuan. Other MDI producers, such as Shanghai BASF, Covestro, and Huntsman, need to purchase steam from the plant. Based on a steam price of around 250 yuan per ton at the Shanghai Thermal Power Plant, Wanhua can save 100 yuan per ton of steam. To produce 1 ton of MDI, approximately 2.2 tons of steam (at 3.5 MPa) are required. Therefore, in terms of steam costs, Wanhua can save 220 yuan per ton of MDI produced. Advantage in electricity costs: Wanhua has its own power plants and thermal power stations to meet its own electricity needs. Based on the coal prices in Shandong, Pingtouge estimates that the cost of operating a self-owned power plant is around 0.25–0.3 yuan per kilowatt-hour, while the electricity price for large industrial users in Shanghai is 0.648 yuan per kilowatt-hour. Assuming that 900 kilowatt-hours of electricity are required to produce one ton of MDI, Wanhua can save approximately 313 yuan per ton in electricity costs (with some of this profit coming from the thermal power generation process). Furthermore, MDI production requires chlor-alkali, which is produced in-house at Wanhua’s Bajiao Industrial Park. Other Shanghai manufacturers need to purchase chlor-alkali from the park, but the specific impact of this advantage depends on the price of chlor-alkali in the domestic market.
(4) The costs related to overheads have continued to decline. Wanhua also has certain advantages in terms of company operation and management efficiency, which are reflected in its lower overhead ratio. Since 2015, Wanhua’s ratio of these three expenses has been declining year by year, dropping from 18% to 8% in the first three quarters of this year; it also holds a certain advantage over other leading manufacturers in the industry.
Recently, Wanhua Chemical Group Co., Ltd. (hereinafter referred to as “Wanhua Chemical”) announced that, in accordance with its annual maintenance plan, the MDI plant (600,000 tons per year) and TDI plant (300,000 tons per year) located in the company’s Yantai industrial park will cease operations for maintenance starting from July 1, with the maintenance period expected to last around 45 days. Regarding this maintenance work, Wanhua Chemical told a reporter from the International Financial News, “Everything is subject to the official announcement.” ”The company stated that in order to ensure the safe and efficient operation of its production facilities, this shutdown for maintenance is a routine inspection carried out as part of the annual plan, and it will have no impact on the company’s production and operations.