Yantai Wanhua: Winning The Risk Of Double Squeeze In The Upper And Lower Reaches

Yantai Wanhua (600309) Pu Limited by Share Ltd (600309.SH, hereinafter referred to as "Yantai Wanhua") office building, which is not far from the development zone of the city of Yantai, has not opened the air conditioner for two days. The reason is that the 45 day technical renovation is underway and the chilled water device is being overhauled.

Although weather and indoor temperature are somewhat high, they do not affect the mood of executive vice president and Dong Kuo Kou Guang Wu.

When it comes to crazy oil prices, his first words are: "the surge in oil prices has a great impact on the entire chemical industry."

As the first joint stock company to be restructured and listed in Shandong, Wanhua's sales revenue last year was 7 billion 804 million yuan and its net profit was 1 billion 481 million yuan. The products of research, development, production and sales of MDI (isocyanate), aromatic polyamine series and thermoplastic polyurethane elastomers were its main product lines, and it is also the largest MDI manufacturing enterprise in the Asia Pacific region at present.

According to the industry chain, the most important product of Yantai Wanhua's products is oil.

Its technological route is that crude oil is cracked into naphtha, then processed into pure benzene, and pure benzene is reacted with nitric acid and sulfuric acid to form aniline and produce MDI.

"As oil prices continue to rise, the cost of raw materials and energy continues to rise. This is a global problem. It is impossible for Yantai Wanhua to stay out of it."

Kou Guangwu admits.

Direct impact is not only upstream price, but also downstream customers.

Crude oil prices have risen by more than 40% since the beginning of this year. "It has led to almost simultaneous rise in prices of petroleum derivatives."

For example, aniline, as a result of many new projects, the supply price of aniline has been declining since last June. But from March this year, the price of aniline supply has a turning point, especially after entering June, the price of aniline has risen sharply. At present, the supply price of aniline in the domestic market has reached 15000 yuan / ton, which has reached a record high, rising 40% compared with the low point of January this year.

The main factor leading to the soaring price of aniline is the rise in oil prices. In addition, the price of nitric acid and sulfuric acid, the two other raw materials for producing aniline, is also soaring.

Now we can see that oil prices continue to rise.

At the beginning of July, Sinopec raised the price of naphtha again.

"A little better is that Yantai Wanhua implements strategic procurement in the procurement of raw materials. We will not follow the market price, but the impact on the enterprise is still very large."

Kou Guangwu explained that the company is carrying out the global procurement mode, and will not be restricted or trapped in any supplier. "For example, the suppliers of aniline, they also need some long-term stable customers. Compared to the 300 thousand tons / year of aniline procurement in Yantai Wanhua, aniline suppliers will not ignore Yantai Wanhua."

Secondly, Yantai Wanhua made a long list in the past, such as aniline, which is based on the average price of benzene at present, plus a fixed cost profit absolute amount, forming the purchasing price of the company.

"In this case, the price of benzene has not increased substantially this year, this mode has stabilized the cost of comprehensive consumption of aniline used by the company."

"Through these measures, Yantai Wanhua's strategic purchasing role is very obvious, and our bargaining power has played a role. Under the situation that the price of petrochemical industry has risen substantially, although the impact of raw materials is very large, it has not yet struck a fatal blow."

Another price test of Yantai's Wanhua is that the price of crude oil is too high, which has caused the shrinkage of downstream industries.

Yantai Wanhua's products are mainly divided into two kinds: MDI and MDI.

Some of the former customers are manufacturers of freezers and refrigerators. Some of the latter customers are clothing and shoemaking enterprises.

"The refrigerator and refrigerator industry has not changed much, but the clothing and shoemaking industry has encountered great difficulties this year, especially some low-end clothing and shoemaking enterprises."

Kou Guangwu said that due to multiple factors such as the subprime mortgage crisis, the reduction of export rebates and the appreciation of RMB, the demand for shoemaking and clothing has been greatly reduced overseas.

"For example, in Wenzhou, Zhejiang, many enterprises have at least reduced production.

From this perspective, their pressure this year is greater than that of Yantai Wanhua.

In the MDI manufacturing business, the operation of several installations of multinational corporations has also brought down the price of the whole industry.

At present, BASF and other joint ventures in Shanghai Chemical Industrial Zone put into operation 240 thousand tons of equipment, Japan NPU20 million tons of equipment and Bayer company's devices are entering or will soon enter the operation stage.

These make the supply of MDI relatively adequate throughout the country, while the same period last year was tight.

Kou Guangwu said that before foreign investment had not yet entered China, Yantai Wanhua was the only MDI manufacturer.

"In 2005 and 2006, MDI was fired to 40 thousand or even 50 thousand yuan per ton, and the factory price of Yantai Wanhua was 25 thousand to 27 thousand yuan.

Yantai Wanhua's consideration at that time was that if the factory price was raised to 40 thousand yuan, although the company would increase profits in a certain period, it would surely cause a fatal injury to the domestic polyurethane industry. The downstream industry will shrink and the downstream customers will be reduced, which will eventually lead to Yantai Wanhua itself losing the market.

Therefore, although Yantai Wanhua earned less money at that time, the effect is quite obvious from now on.

"For example, this year, influenced by the operation of overseas giants in China, the user psychology has changed. In the case of oil prices rising substantially and raw material prices rising, the domestic MDI market price has dropped slightly. Due to the influence of factors such as the steady supply and maintenance of market in Yantai, Yantai Wanhua's product price is the smallest in the same industry."

Pure MDI has bigger opportunities in terms of energy conservation and emission reduction and wall insulation materials.

"In foreign countries, this part accounts for more than 50% of the total MDI, and now China is just starting."

According to Kou Guangwu's data, the demand for MDI in some industries last year was about 9000 tons, and this year it will reach 29000 tons. "In 2010, it will exceed 270 thousand tons."

Since the beginning of the year, the price of aggregated MDI has fallen by about 10%.

"In 2005 and 2007, the price of aggregated MDI per ton basically fluctuated between 20 thousand and 25 thousand yuan.

Kou Guangwu said, "although overseas companies have been deployed in China, the risk of a single product in Yantai Wanhua's MDI company has attracted attention. Due to the quality of the product, the quality of our products is the best, and the price has a premium effect. Compared with other MDI suppliers, our price is higher than 400~1000 yuan / ton."

"In view of this year's changes, Yantai Wanhua has done a positive and fruitful work. First of all, in the macro industry guidance, such as energy saving building materials and ecological board industry, in this field, we have promoted the implementation of relevant national departments' policies, such as building energy efficiency standards.

On the micro level, from the internal point of view, by improving the technological content in production and operation, upgrading the quality of products, changing the situation of relying on low cost and occupying the market, such as modifying the products, the products will be more in line with the requirements of customers for products.

Yantai Wanhua estimated that the profits of the new products in the next three years will exceed 20% of the profits of the enterprises.

In the late 70s of the last century, Yantai introduced the Japanese device. At that time, the MDI output was 10 thousand tons, but the equipment had been running for ten years, the highest output was only 8000 tons, and the product quality was very poor.

By 1996, the operation of the company was very difficult.

"The company made policy leaning towards the employees and researchers through restructuring, then produced and developed the best MDI products at that time, and made a qualitative leap.

In 2001, the company officially entered the capital market and entered a new development track.

After the listing in 2001, the annual compound growth rate of Yantai Wanhua profit was 63%, while sales increased by 57%.

According to the company's objectives, in 2010, after the total operation of Yantai Wanhua Ningbo base and 600 thousand tons of Yantai's 200 thousand tons MDI plant, it will remain the largest MDI product manufacturer in China.

If the crude oil price is stable at 150 US dollars per barrel, and the downstream industry will continue to shrink, will it bring new challenges to the total volume of MDI on such a large scale?

Kou Guangwu does not think so, because the company's internationalization strategy has begun to implement step by step, from the near future and in the long run, will help the business of the enterprise.

He said that now the company has established sales oriented development companies in Europe, Holland, the United States, China, Hongkong and Japan. Through these means, Yantai Wanhua will have a check and balance on the price of MDI.

"We hope that we can jointly safeguard the polyurethane industry, but if our industry wants to wage a price war at home, then we will also start checks and balances in their own backyard."

According to his estimate, overseas sales of Yantai Wanhua will exceed $200 million this year. "Last year around 150 million dollars, less than 20% of sales revenue".

Opening up new territories in overseas businesses may also reduce the impact of oil products on the company. For example, MDI installations in some areas are not built, and their local prices may be higher and profits will not be too low.

"I believe that emerging markets like Vietnam, India and Russia, the Middle East and so on will have a good market prospect."

The largest sales volume of MDI now is the United States and Europe, each of which is about 1 million 400 thousand tons / year. "That market is very large, and every year there is a natural growth of 3%~5%. From the natural growth market, we will not have a serious conflict with our industry. Besides, local customers do not want to choose only one enterprise, so we also have opportunities."