Recently, a piece of news from the chemical industry has attracted widespread attention. The Hunan Provincial Department of Industry and Information Technology issued a notice regarding the assessment of old equipment in the petrochemical and chemical industry in Hunan Province. Reports indicate that the country is redefining old petrochemical equipment, focusing on core old installations in areas such as refining, coal chemical, chlorine alkali, soda ash, calcium carbide, phosphate fertilizer, tires, and fine chemicals that have reached their design lifespan or have been in operation for over 20 years. The aim is to promote the green, intelligent, and safe transformation of old equipment, accelerating the updating and renovation of outdated, inefficient, and high-risk devices, whereas the previous common understanding was 30 years.
On the night of July 18, Friday, the commodity futures sector rose sharply, with the previously weak and oscillating plastic futures showing a significant rebound. Over the weekend, the discussion centered on the renovation and elimination of old petrochemical facilities, leading to strong expectations for future speculation.
Multiple institutions have conducted statistics, and in terms of capacity share data, several chemical products such as short fibers, caustic soda, and urea show a considerable proportion of production capacity that is over 20 years old. Short fibers account for 47%, indicating that nearly half of the short fiber capacity comes from old facilities that have been in operation for more than 20 years; caustic soda has a share of 43%, and the number of long-running facilities is also significant; urea accounts for 20%, while pure benzene and butadiene are both 18%, styrene butadiene rubber is 15%, plastics are 14%, ethylene is 12%, PVC is 12%, and PP is 10%. Although the share of methanol, PX, PTA, and other varieties is below 10%, the base of old capacity is also not to be overlooked.
The energy team of Tianfeng Securities has made statistics based on Longzhong Petrochemical data that are similar.
These outdated facilities have shown increasing drawbacks over long-term operation. Equipment aging and outdated technology not only lead to low production efficiency but also result in high energy consumption and pollution issues. The safety performance of some installations can also be difficult to guarantee, posing potential risks for production operations. Given the increasingly strict environmental and safety requirements, renovation and elimination are imperative.
It should be noted that the elimination of outdated petrochemical facilities is a relatively long-term process. However, considering that this year marks the conclusion of the 14th Five-Year Plan, and the recent continuation of the "anti-involution" momentum, capacity reduction is also a specific policy path outlined in the sixth meeting of the Central Financial Committee. This involves governing low-price and disorderly competition among enterprises in accordance with the law and regulations, and promoting the orderly exit of backward production capacity. Therefore, the news of the elimination of outdated facilities may drive the petrochemical industry, from commodities to stocks, to experience a comprehensive valuation increase.
