Chapter 1 Industry Overview
Pure Terephthalic Acid (PTA) is a key chemical mainly used in the manufacture of polyester fibers and plastics. PTA is a white crystalline solid that can be obtained by oxidation of p-benzodione under the action of a catalyst. It is the main raw material for polyethylene terephthalate (PET), a widely used plastic used to make beverage bottles, food packaging, electronic devices, and more. PTA is an important component of many products of modern life, including clothing, packaging materials, home textiles, and electronic devices.
The production process of PTA usually includes the following steps:
- Paraxylene (PX) oxidation: Under the action of a catalyst, paraxylene is oxidized in air to form crude terephthalic acid.
- Refining: Crude terephthalic acid is further refined, through steps such as crystallization, centrifugation and drying, to obtain purified terephthalic acid.
The application of PTA in industry mainly includes:
- Polyester manufacturing: PTA is a key raw material for the manufacture of polyester, including polyester fibers and polyester plastics. Polyester fibers are widely used in the textile industry, such as clothing, bed sheets and towels. Polyester plastic (PET) is widely used in packaging, such as beverage bottles and food containers.
- Coatings and resins: PTA is also used in the production of coatings and resins, especially those for corrosion protection and wear resistance.
- Other Chemical Products: PTA is also a raw material for many other chemical products, including certain pharmaceuticals and pesticides.
PTA is widely used in China, especially in the polyester industry, which includes polyester bottles (PET) for packaging and polyester for fibers. As of January 17, 2023, the number of Shanghai and Shenzhen constituent stocks in the iFinD steel sector is 10, which has not changed in recent years. The total market value of the enterprise has fluctuated greatly in recent years, but has been stable recently. As of January 17, 2023, the total market value of the enterprise is 1,818.043 billion yuan.
Figure PTA futures price and index
Source: Qianji Investment Bank iFinD
Overall, PTA is an extremely important chemical that plays a key role in many products of modern life. In view of its wide range of applications, the PTA industry occupies an important position in the global chemical market.
Chapter 2 Business Model and Technology Development
2.1 PTA Industry Chain
The PTA industry is an important midstream industry. The upstream undertakes the petrochemical industry, and the downstream connects with the chemical fiber industry. Upstream raw materials are mainly petrochemical resources such as petroleum and natural gas, and chemical products such as MX and PX liquids. The demand for polyester fiber and polyester bottle flakes in the downstream industry is relatively large. The transmission effect of the entire industrial chain is from bottom to top, and downstream demand affects The output of PTA, PET and MEG, etc., will affect the demand for upstream raw materials.
Figure PTA industry chain structure diagram
Source: Qianji Investment Bank iFinD
Figure PTA industry chain panorama
Source: Asset Information Network Qianji Investment Bank Everbright Securities Research Institute
The industrial chain of the PTA (purified terephthalic acid) industry starts from petroleum refining and eventually extends to the manufacture of various end consumer goods. The following are the main links of this industrial chain:
- Petroleum refining: Petroleum is the starting point of the PTA industrial chain. Petroleum is refined to produce a variety of petrochemicals, including paraxylene (PX), a key feedstock for the production of PTA.
- Para-xylene (PX) production: Para-xylene is an aromatic hydrocarbon that is the immediate precursor of PTA. The production of PX is usually carried out in petrochemical plants, where the main processes involved are reforming and isomerization.
- PTA production: After the PX production link, PX is converted into PTA through an oxidation process. The process takes place in special reactors, often with catalysts, and requires tight control of temperature and pressure.
- Polyester production: PTA is the main raw material for the production of polyester (PET), and the other raw material is ethylene glycol. During polymerization, PTA and ethylene glycol react at high temperature to form polyester.
- Polyester Applications: Polyester can be further processed into various forms such as fibers, films and bottles for various applications. For example, polyester fibers are widely used in textiles and clothing, and PET bottles are widely used in beverage packaging.
- Terminal consumption: From beverages in PET bottles to clothing containing polyester fibers, they are all terminal consumer goods in the PTA industry chain. These products are widely sold across the globe, catering to various consumer needs.
Each of the above links involves a range of players, including oil refiners, chemical plants, PTA producers, polyester producers, textile and packaging manufacturers, as well as retailers and consumers. The actions of these players will affect the development and market dynamics of the PTA industry.
At present, the world's PTA industry is in a mature stage of technology. With the further development of the manufacturing industry, my country's PTA industry has gradually completed the substitution of domestic products for imported products. The concentrated production of PTA has pushed the industry to go through the self-clearing stage since 2014; However, with the further development of the manufacturing industry, my country's PTA industry has entered the second round of expansion cycle. Due to the characteristics of the PTA industry, the current PTA industry presents the characteristics of high industry concentration, high domestic self-sufficiency rate, and low sales price.
2.2 Business model
The business model of the PTA (purified terephthalic acid) industry involves a series of links from raw material procurement to product sales. The following are the main business models in the industry:
- Sourcing: PTA producers need to procure raw materials, mainly paraxylene (PX). This may involve long-term supply contracts with PX producers, or it may involve purchasing PX on the global market. The main commercial issue in this link is how to ensure the stability and cost-effectiveness of raw material supply.
- Production: PTA producers need to operate and maintain production facilities to convert PX to PTA. This involves issues such as production efficiency, quality control and facility maintenance.
- Sales: PTA producers need to sell the produced PTA to polyester producers. This may involve long-term sales contracts with polyester producers, or it may involve selling PTA on the global market. The main business problem in this link is how to ensure the stability of sales and profit level.
- Market Research: PTA producers need to conduct market research to understand market trends, price dynamics, and competition. This is critical for strategizing and making decisions.
- Risk management: The PTA industry faces many risks, including fluctuations in raw material prices, changes in market demand, and policy changes. Therefore, PTA producers need to have risk management strategies to deal with these risks.
From the perspective of production process, in the upstream petrochemical raw material field, firstly, raw materials such as petroleum and natural gas are purchased and processed to produce MX and PX liquid products, so they are significantly affected by fluctuations in oil and gas prices in domestic and foreign markets.
The average price index of oil spot price and domestic PTA spot price in Fig.
Source: Qianji Investment Bank iFinD
In the downstream chemical fiber industry, the PTA industry has entered a new round of expansion since April 2019. However, due to the impact of soaring global energy prices and global economic recession caused by the superimposition of the Russia-Ukraine War in 2022, the PTA industry’s prosperity has declined and demand is not good. The price of PTA fluctuated greatly due to the shortage of crude oil and PX. In 2022, PTA plans to put into production 8.6 million tons of equipment, but the actual production of 3.6 million tons is lower than expected.
Overall, the business model of the PTA industry involves a series of complex decisions and strategies aimed at achieving profit and growth in a changing market environment.
With the continuous development of my country's manufacturing industry, the demand for PTA products has been continuously pushed up, thereby driving the supply of PTA products to increase.
2.3 Technology Development
The technical development of PTA (purified terephthalic acid) industry mainly focuses on the following aspects:
- Production efficiency: With the development of new technologies and processes, the efficiency of PTA production is constantly improving. For example, novel catalyst and reactor designs can increase the conversion of PX to PTA, reduce by-product formation, and reduce energy consumption. In addition, production efficiency can also be increased through improved automation and digitization of the production process.
- Environmental Impact: With increasing environmental protection requirements, PTA producers are seeking more environmentally friendly production methods. This includes reducing waste generation, improving energy efficiency, and developing renewable and recyclable raw materials. For example, some companies are researching the use of biomass instead of petroleum as a source of PX, or developing new methods for recovering and reusing PTA.
- New materials: With the development of science and technology, PTA and its downstream products (such as polyester) are also constantly innovating. For example, by changing the molecular structure of polyester, it is possible to create materials with new properties and properties, such as more wear-resistant, lighter or more transparent polyester.
- Integration and optimization: In the industrial chain, PTA manufacturers are also seeking closer integration and optimization. For example, some companies are trying to integrate the production of PX and PTA in one facility to reduce the cost of transportation and storage. In addition, through better coordination of raw material procurement, production and sales, the operation of the entire industrial chain can also be optimized.
Through statistics on the number of patents of each patent applicant in the domestic PTA industry, the top ten companies are: Sinopec, PetroChina, Shanghai Petrochemical, Huajin, Hengli Petrochemical, Shenyang Chemical, Rongsheng Petrochemical, Xiangli Shares, Dongfang Shenghong, Hengyi Petrochemical.
Table Top 10 PTA companies in domestic patent ranking (as of January 17, 2023)
Source: Qianji Investment Bank iFinD
As the most important raw material industry, the most fundamental task of the PTA industry is to provide the society with sufficient quantity and high-quality high-performance PTA with the lowest resource and energy consumption, the lowest environmental and ecological load, and the highest efficiency and labor productivity. Products meet the needs of social development, national security, and people's lives.
In general, the technological development of the PTA industry is promoting the efficiency, environmental protection and innovation of the industry to adapt to changing market demands and environmental requirements.
2.4 Policy Supervision
Industry authorities and management system
The Ministry of Industry and Information Technology conducts macro-control on the industry. China Chemical Fiber Industry Association and China PTA Industry Association are national industry organizations of China's PTA industry.
related policy
PTA materials are basic industrial raw materials. To achieve high-quality industrial development, the PTA industry must continuously create high-quality, high-performance PTA products to meet the needs of high-quality economic development.
In order to promote the high-quality development of the PTA industry and accelerate the transformation and upgrading of the industry, a series of supporting policies have been issued from the state to the local level, which provides a good guarantee for the accelerated transformation and upgrading of the PTA industry.
- 2017.12.05, the National Development and Reform Commission issued the "Guiding Opinions on Promoting the Green Development of the Petrochemical Industry"
- 2019.10.30, the National Development and Reform Commission released the "Industrial Structure Adjustment Guidance Catalog (2019 Version)"
- 2021.11, the National Development and Reform Commission issued the "Notice on Publishing the "Energy Efficiency Benchmark Level and Benchmark Level in Key Areas of High Energy Consumption Industries (2021 Edition)""
- 2022.04.08, the Ministry of Industry and Information Technology, the National Development and Reform Commission, the Ministry of Science and Technology, the Ministry of Ecology and Environment, the Ministry of Emergency Response, and the Energy Bureau jointly issued the "Guiding Opinions on Promoting the High-quality Development of the Petrochemical and Chemical Industry during the 14th Five-Year Plan"
Chapter 3 Industry Valuation, Pricing Mechanism and Global Leading Enterprises
3.1 Comprehensive financial analysis and valuation methods of the industry
When conducting a comprehensive financial analysis of the PTA industry, the following aspects can be considered:
- Income Statement Analysis: Evaluate the industry's revenue growth, as well as changes in profit margins. This can help us understand the industry's profitability and quality of earnings. At the same time, it is also possible to analyze the proportion of various costs (such as raw material costs, operating costs, and financial costs) in the total cost to understand the factors that affect the profit margin.
- Balance Sheet Analysis: Assessing the industry's capital structure and financial risk. This includes analyzing financial ratios such as debt ratios, current ratios, and quick ratios for the industry. At the same time, the scale and changes of capital investment (such as fixed assets and intangible assets) of the industry can also be analyzed to understand the industry's capital needs and return on investment.
- Cash Flow Statement Analysis: Evaluate the industry's cash inflows and outflows. This includes analyzing the industry's operating cash flow, investing cash flow, and financing cash flow. Through this analysis, we can understand the cash management and financial stability of the industry.
- Industry Comparative Analysis: Compare the financial indicators of the PTA industry with other industries or similar industries. This can help us understand whether the financial performance of the PTA industry is outperforming or lagging other industries.
- Trend analysis: Understand the industry's financial performance trends by analyzing financial data over the years. This can help us predict future financial performance and risks.
- Sensitivity Analysis: Evaluate the sensitivity of the industry's financial performance to key variables (such as raw material prices, sales prices, output, etc.). This can help us understand the risk exposure of the industry and provide a basis for the risk management of the industry.
When conducting the above analysis, it should be noted that financial analysis is only one aspect of evaluating industry performance, and it needs to be combined with market analysis, competition analysis and other information to make a comprehensive evaluation.
Figure Comprehensive Financial Analysis
Source: Qianji Investment Bank iFinD
Figure Industry Valuation and Historical Comparison
Source: Qianji Investment Bank iFinD
Figure Index PE/PB Bands
Source: Qianji Investment Bank iFinD
Chart Index Market Performance
Source: Qianji Investment Bank iFinD
PTA industry valuation methods can choose price-earnings ratio valuation method, PEG valuation method, price-to-book ratio valuation method, price-to-current ratio, P/S market-to-sales ratio valuation method, EV enterprise value method, EV/Sales market-to-sales ratio valuation method value method, RNAV revaluation net asset valuation method, EV/EBITDA valuation method, DDM valuation method, DCF discounted cash flow valuation method, dividend discount model, equity free cash flow discount model, unlevered free cash Discounted flow model, net asset value method, economic value added discount model, adjusted present value method, NAV net asset value valuation method, book value method, liquidation value method, cost replacement method, real option, LTV/CAC ( Customer lifetime value/customer acquisition cost), P/GMV, P/C (customer), Metcalfe valuation model, PEV, etc.
Figure comparison of valuations of major listed companies
Source: Asset Information Network Qianji Investment Bank
3.2 Driving factors of industry development
(1) Technological innovation
Through the research and development of a new generation of equipment and the optimization of the production process, the new generation of high-capacity annual output of 250-300 tons can be effectively put into operation, and the efficiency of oxidation and catalytic technology in the PTA production process can be promoted, and the loss of raw materials in the whole production process can be effectively reduced. Quantity, assisting enterprises to effectively exert force on the cost side and control costs.
To achieve catching up through technological innovation, the PTA industry should be based on independent innovation, actively develop high-tech, high value-added, high-end key products, and provide key PTA material support for the realization of a manufacturing power.
(2) Policy support
With the implementation of a series of policies such as the country's cultivation of advanced manufacturing, manufacturing transformation, carbon peaking, and carbon neutralization, relying on the policy update of the energy and chemical industry, it will promote the transformation of new and old kinetic energy in the petrochemical industry, and promote the transformation of production processes and greenization . Local governments mainly provide policy encouragement in terms of financial subsidies, tax concessions, financial support, industry guidance, and administrative licensing support.
(3) Event-driven
Figure News Index
Source: Qianji Investment Bank iFinD
3.3 Industry risk analysis and risk management
Table common industry risk factors
Source: Asset Information Network Qianji Investment Bank
(1) Environmental risks: environmental protection policies and standards are becoming more and more perfect and strict, supervision and law enforcement are constantly intensified, and requirements for corporate environmental improvement are raised. PTA production enterprises will face greater environmental protection pressure and invest more funds in the environmental protection transformation of the whole process production process, resulting in an increase in environmental protection investment of enterprises.
(2) Risk of concentrated production capacity release: The localization rate of PTA products in my country has reached 100% and the domestic market is saturated. With the launch of new technologies and new devices, the production of PTA by various enterprises will increase rapidly. The centralized implementation of capacity replacement projects and the centralized release of production capacity will have a serious impact on market supply and demand, exacerbate the imbalance between market supply and demand, and further shrink profit margins.
(3) Risk of raw material price fluctuations: Fluctuations in oil and natural gas prices, combined with the rising trend of international oil prices brought about by the Russo-Ukraine War and the world economic recession, PTA companies will face greater cost pressures, and profit margins will be further compressed, increasing business operations. Uncertainty has brought adverse effects on the operation of PTA enterprises.
3.4 Competition Analysis
When analyzing the competition status of the PTA industry, we can refer to Porter's Five Forces Model, which includes the bargaining power of suppliers, the bargaining power of buyers, the threat of new entrants, and the threat of substitutes and competitors in the industry.
1. Bargaining power of suppliers: The main raw material of PTA is PX, and the suppliers of PX are mainly petrochemical companies. If the number of these suppliers is not large, or they have sufficient market power, then they may It will exert price pressure on PTA producers, thereby increasing the cost of PTA producers.
2. Bargaining power of buyers: The main buyers of PTA are polyester producers, if these buyers are not in large numbers, or they have sufficient market power, then they may exert price pressure on PTA producers, thereby reducing PTA Manufacturer's profit margin.
3. Threat of new entrants: Entering the PTA industry requires a large capital investment, as well as complex production technology and licenses, which constitute a high barrier to entry. However, if new companies or countries are willing to invest in the construction of new PTA production facilities, then this may increase the supply of the industry, thereby increasing the competitive pressure.
4. The threat of substitutes: At present, the main raw material of polyester is PTA, and there is no direct substitute. However, if there are new materials or technologies that can replace polyester, or make the production of polyester independent of PTA, then this may reduce the demand for PTA, thereby affecting the market for PTA.
5. Competitors in the industry: The competition in the PTA industry mainly comes from other manufacturers in the industry. These competitions may take the form of price competition, quality competition, service competition or technology competition. If competition intensifies, that could put pressure on PTA producers' profit margins.
The competition status of the PTA industry is affected by many factors, and it is necessary to comprehensively analyze various factors in order to draw a comprehensive judgment.
3.5 Development and Market Review
In 2022, the international economic recession and the oil price fluctuations in the international market caused by the Russo-Ukrainian war will lead to fluctuations in the petrochemical industry as a whole, and the performance of the PTA industry will also fluctuate. The prosperity of the industry has gradually declined. Under the weak economic consumption, the terminal demand is weak. In the second half of the year, PX will be put into production gradually, and PTA will fall from a high level. As the hype on the cost side gradually came to an end, after the bubble was squeezed out, and the demand in autumn weakened, the downstream saw a substantial reduction in production again. However, under the high level of energy and the tight supply of PX, the start of PTA fell rapidly, and the pattern of near strength and far weakness In the third and fourth quarters, PTA prices remained range-bound.
Figure industry configuration ratio
Source: Qianji Investment Bank iFinD
3.6 Important participating companies
Important players in Chinese enterprises include PetroChina [601857.SH], Sinopec [600028.SH], Rongsheng Petrochemical [002493.SZ], Hengli Petrochemical [600346.SH], Dongfang Shenghong [000301.SZ], Shanghai Petrochemical [600688.SH], Hengyi Petrochemical [000703.SZ], Huajin [000059.SZ], Shenyang Chemical [000698.SZ], Xiangli [600506.SH].
Major international competitors include Saudi Aramco [ARAMCO.AB], Exxon Mobil [XOM.US], Chevron [CVX.US], Royal Dutch Shell [RDS-A.US] , ConocoPhillips [COP.US], Total [FP.FP], etc.
Figure 2023 Top 10 Global Petrochemical Enterprises
Source: Asset Information Network Qianji Investment Bank
Chapter 4 Future Outlook
Our outlook on the future development of the PTA industry is as follows:
- Globally, the PTA market is expected to keep growing. The global PTA market is expected to grow at a CAGR of 5.5% between 2022 and 2032.
- In China, the expansion of the PTA industry is expected to continue, although past expansions have resulted in an oversupply situation that has driven down profit margins. This trend is expected to continue in the short term, but may eventually improve through rationalization of capacity. In addition, China's PTA exports hit a new high in 2021, which may reflect the growth of China's PTA capacity and changes in domestic demand.
- The future development of the PTA market will be influenced by a number of key factors, including changes in upstream parabens and oil prices, as well as changes in supply and demand fundamentals in the short term.
- The main application areas of PTA, including textiles, plastic bottles, coatings and packaging materials, etc., are expected to maintain growth in the next few years. Especially in China, India, Mexico, and Saudi Arabia, government investments and development of coatings, textiles, and packaging industries are likely to drive market expansion. Increasing use of unsaturated polyester resins (UPR) in food & beverage packaging, pharmaceutical packaging, and in various sectors such as construction, marine, transportation, wind energy, and electricity will also drive the demand for PTA.
- China, the world's largest textile exporter, accounting for 38% of the global textile industry, is expected to grow significantly in the next few years, which may stimulate the demand for PTA.
Cover Photo by Revieshan on Unsplash