The Zhitong Finance App learned that Haitong Securities released a research report saying that in order to promote the shift from dual control of energy consumption to dual control of carbon emissions, green and low-carbon demonstration projects in various fields are expected to be fully implemented. Combined with the acceleration of carbon market construction, it will inject vitality into the environmental protection industry. In 2024, it is recommended to focus on the two main lines of the environmental protection industry: 1) High dividends: focus on waste incineration and water services sectors. The decline in capital expenditure and stable operating cash flow can support the increase in dividends, thereby increasing the current undervaluation; 2) Subsectors related to economic recovery and carbon market construction, focusing on improving resource cycle efficiency, cost reduction, and carbon reduction. It is recommended to focus on: semiconductor ancillary equipment, non-ferrous waste acid treatment, carbon monitoring, sanitation services, and metal recycling benefiting from industrial recovery.

Recommended attention: Huahong Technology (002645.SZ), Huicheng Environmental Protection (300779.SZ), Dadi Ocean (301068.SZ), Tianqi Co., Ltd. (002009.SZ), Wangneng Environment (002034.SZ), Dongjiang Environmental Protection (002672.SZ).

Haitong Securities pointed out that on March 13, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”. The “Action Plan” states that encouraging advancement, eliminating backwardness, leading and orderly upgrading of standards, implementing the four major actions of equipment renewal, consumer goods trade-in, recycling, and standard upgrading, vigorously promote the production and application of advanced equipment, promote a continuous increase in the share of advanced production capacity, promote more high-quality and durable consumer goods into residents' lives, unblock the resource recycling chain, and greatly improve the quality and level of the national economic cycle. This action plan not only promotes the upgrading of high-efficiency and energy-saving equipment, but also helps boost demand for recycling. The renewable resources market is expected to expand further.

In terms of quantity: The “Action Plan” indicates that by 2027, the amount of scrapped vehicles recycled will about double compared to 2023, the amount of waste household appliances recycled will increase by 30% compared to 2023, and the share of recycled materials in resource supply will further increase.

1) End-of-life vehicles: The recycling volume of end-of-life vehicles is increasing steadily, and it is conservatively estimated to reach 5.3 million vehicles in 2027

From 2013 to 2023, China's automobile ownership gradually expanded, with a compound growth rate of over 9%. According to statistics from the Ministry of Public Security, the number of motor vehicles in the country reached 435 million in 2023, including 336 million cars. As an important source of raw materials in the circular economy, end-of-life vehicles are an important source of raw materials in the circular economy. Compared with other raw materials (waste household appliances, waste computers, cans, etc.), they have characteristics such as large stocks, high resource value, and parts can be remanufactured, and are an important pillar of the upstream raw material source of the circular economy. According to the official account of Zhiyan Kexin, the amount of scrapped cars recycled has been increasing steadily since '17, and in 2022, 2.65 million scrapped vehicles were recycled in China. We conservatively assume that the amount of scrapped cars recycled in 2023 will be the same as in '22, and according to the “Action Plan”, we estimate that the amount of recycling in 2027 will reach 5.3 million vehicles. In December 2023, Huahong Technology announced an equity partnership with Beijing Auto Brothers to promote the company's end-of-life motor vehicle recycling and dismantling business.

2) Waste household appliances: An average of 100 million units of used household appliances are scrapped every year, and the recycling amount of used household appliances can reach 5.85 million tons in '27

On January 23, 9 departments including the Ministry of Commerce issued the “Notice on Improving the Recycling System for Waste Home Appliances and Furniture”. The goal is to build a number of typical cities with renewable resource recycling systems such as waste household appliances and furniture across the country by 2025, cultivate a number of leading recycling enterprises, promote a number of typical empirical models, and form a number of policies, regulations and standards. The recycling volume of waste household appliances and furniture nationwide will increase by more than 15% compared to 2023. According to the Chinese government network, in 2023, the total amount of waste household appliances recycled in China will reach 4.5 million tons, containing a large amount of precious metals and plastics such as gold, silver, copper, and tin. China has more than 2.1 billion electrical appliances, and the number of waste household appliances eliminated each year has reached 100 million to 190 million, growing at an average annual rate of 20%. According to the Action Plan, it is estimated that 5.85 million tons of used household appliances will be recycled in 2027.

3) Power battery recycling: The wave of new energy vehicles being scrapped has arrived, and China is the world leader in lithium battery recycling

Power battery recycling is an important part of the sustainable development of the new energy industry, and the key to the sustainable supply of strategic mineral resources such as lithium, nickel, and cobalt. Since 2015, sales and ownership of new energy vehicles in China have risen rapidly. In 2023, sales of new energy vehicles reached 9.5 million units, and the number of NEVs owned reached 20.41 million units. Take lithium battery recycling as an example. According to the SMM lithium battery recycling website, the first round of battery decommissioning has gradually emerged. In February 2024, the global recycling volume of lithium batteries exceeded 10 million tons, +25% over the same period, with China accounting for nearly 50% of the recycling volume.

4) Waste plastics: recycling waste plastics to deal with “white pollution”, China's waste plastics market has great potential

According to the official website of the Chinese Academy of Sciences, quoting Li Jinghong, an Academician of the Chinese Academy of Sciences, global plastic production increased from 320 million tons to 430 million tons from 2015 to 2023. In 2022, China's waste plastic production will exceed 60 million tons, of which only 18 million tons will be materialized for recycling, and the material recycling rate is about 30%. The remaining 70% of low-value waste plastics are basically mixed into household waste and are incinerated or landfilled, making it difficult to control plastic pollution. Chemical recycling technology can effectively break through the limitations of physical recycling application scenarios, break through development bottlenecks in the materialized recycling of waste plastics, and can also centrally recycle various low-value waste plastics, turning “white pollution” into a “white oil field”.

Looking at prices: Precious metal prices are running high, scrap prices have entered a downward channel, and lithium carbonate prices have picked up slightly.

On March 13, COMEX gold futures closed at $2,179.40 per ounce; Shanghai gold futures closed at 505.62 yuan/gram. On March 14, the price of scrap was 363.80 US dollars/ton. On March 14, the price of lithium carbonate was 112,240 yuan/ton. It is recommended to focus on the Federal Reserve interest rate meeting next week on 19-20.

Risk warning: Policy progress falls short of expectations, industry development falls short of expectations, equipment renewal cycles fall short of expectations, and commodity prices fluctuate.