The Zhitong Finance App learned that Haitong Securities released a research report saying that domestic demand for adipic acid is expected to increase by about 400,000 tons per year within the next three years. Taking into account existing production capacity and production capacity under construction, the bank estimates that in 2026, domestic demand for adipic acid will reach 3.2092 million tons, and the output will reach 3.059 million tons. The supply gaps in 2024-2026 are: 104,400 tons, -363,000 tons, and -203,400 tons, respectively. The “domestic adipic acid supply gap” in the supply and demand calculation table indicates overcapacity, and negative values indicate insufficient supply. Adipic acid-related industry chain companies include Hualu Hengsheng (600426.SH), Huafeng Chemical (002064.SZ), and Shenma Co., Ltd. (600810.SH).

The views of Haitong Securities are as follows:

Adipic acid is linked to pure benzene nitric acid and various downstream products. The mainstream domestic production process is the cyclohexene method.

1) The upstream of the adipic acid industry chain is raw materials such as pure benzene nitric acid, etc. The downstream applications are mainly in fields such as nylon 66, degradable plastics, and polyurethane materials. 2) The cyclohexene method is the mainstream process for domestic production of adipic acid. It has the advantages of high carbon resource utilization, high product purity, low “three waste” emissions, and low energy consumption.

China is the world's largest producer of adipic acid, and the bank expects further growth in domestic adipic acid production capacity in the future.

1) China is the world's largest producer of adipic acid, with domestic production capacity accounting for 57.6% of global production capacity in 2021. From 2018 to 2023, China's adipic acid production capacity increased rapidly. In 2018-2023, domestic adipic acid production increased from 1.457 million tons to 2.184 million tons, with a compound annual growth rate of 8.43%; production capacity increased from 2,565 million tons to 3.406 million tons, with a compound annual growth rate of 5.84%.

2) Pure benzene accounts for a large share of adipic acid production costs, and fluctuations in pure benzene prices will have a great impact on product prices. The bank estimates that the total cost of producing adipic acid using the cyclohexene method in 2023 is 8,772.8 yuan/ton, and the cost of pure benzene accounts for 54.906% of the total production cost of adipic acid.

3) The bank predicts that the industry will continue to eliminate backward production capacity with high pollution, and that new production capacity will be mainly based on the greener and more environmentally friendly cyclohexene method. At the same time, the biodegradable plastics and polyamide industry downstream of the industrial chain will have good development prospects, and the demand for adipic acid will further increase.

4) Domestic plans to increase the production capacity of adipic acid. The bank estimates that it plans to increase the total production capacity of adipic acid by 2026 by 1.52 million tons. Considering the uncertainty of project construction, the bank expects 80% additional production capacity of adipic acid to be put into operation by the end of 2026, about 1,216,000 tons.

Polyurethane materials form the main downstream demand for adipic acid, and PA66 may drive growth in new demand.

1) Polyurethane materials form the main downstream demand for adipic acid. The application areas are artificial leather industry and footwear industry. In 2023, the downstream consumption structure of adipic acid in China accounted for 38%, the PU slurry industry accounted for 21%, and the nylon 66 industry accounted for 17%.

2) China's total demand for adipic acid showed an overall upward trend in 2018-2023, and declined to a certain extent around 2020 due to the epidemic. From 2018 to 2023, the average annual net export volume of adipic acid was 359,500 tons, a compound annual growth rate of 2.52%; the average apparent consumption in 2018-2023 was 1.336 million tons, a compound annual growth rate of 5.39%.

3) The bank expects PA66 to drive an average annual demand of 260,000 tons of adipic acid from 2024-2026. Compared with other nylon materials, PA66 has the characteristics of high melting point, excellent lubricity, high strength, and wear resistance. The main downstream consumption areas are industrial wire and engineering plastics, and the terminal fields are automobile manufacturing, electronics and electrical appliances. In 2023, China's PA66 production was 597,900 tons, a year-on-year increase of 22.27%, and the compound annual growth rate of PA66 production in 2018-2023 was 12.22%. As of October 2023, China plans to add 4.83 million tons of PA66 production capacity. Considering the uncertainty of project construction and the degree of demand matching, the bank expects 43% of the planned production capacity to be put into operation by the end of 2026. The bank expects PA66 to drive domestic demand of 260,000 tons of adipic acid every year on average from 2024-2026.

4) Demand for PBAT is poor, and the bank expects a low rate of new production capacity. The compound annual growth rate of PBAT production in 2018-2023 was 21.04%, and the year-on-year change rates of PBAT production in 2022 and 2023 were -50.02% and -21.54%, respectively. Annual production fell from 223,900 tons in 2021 to 88,800 tons in 2023.

The overall shortage of adipic acid is expected from 2024-2026, with an average annual gap of 45,300 tons.

The bank expects domestic demand for adipic acid to increase by around 400,000 tons per year within the next three years. Taking into account existing production capacity and production capacity under construction, the bank estimates that in 2026, domestic demand for adipic acid will reach 3.2092 million tons, and the output will reach 3.059 million tons. The supply gaps in 2024-2026 are: 104,400 tons, -363,000 tons, and -203,400 tons, respectively. The “domestic adipic acid supply gap” in the supply and demand calculation table indicates overcapacity, and negative values indicate insufficient supply.

Risk warning: macroeconomic downturn; production capacity investment falls short of expectations; downstream demand growth rate falls short of expectations.