Hua Jin Securities: N-propanol supply is tight, prices may continue to rise.

Huajin Securities released a research report stating that with the growth of downstream demand, the isopropanol market is gradually expanding. Isopropanol is mainly used for the production of isopropyl acetate, and is also an important intermediate for pharmaceuticals and pesticides. Currently, there are two main production processes for isopropanol in China, with most domestic enterprises using the method of ethylene carbonyl synthesis of propionaldehyde and catalytic hydrogenation to produce isopropanol, which is a mature technology. According to Baichuan Yingfu data, the price range of isopropanol has fluctuated widely from 8,400 to 11,000 yuan/ton from 2017 to August 2020. Event: According to Baichuan Yingfu, on November 14, 2024, the market price of isopropanol was 10,800 yuan/ton, an increase of 5.4% from the previous day (10,250 yuan/ton), an increase of 13.7% from the previous week (9,500 yuan/ton), an increase of 20.0% from the previous month (9,000 yuan/ton), an increase of 50.0% from the same period last year (7,200 yuan/ton), and an increase of 46.0% from the beginning of the year (7,400 yuan/ton). Huajin Securities' main points are as follows: Demand: Isopropanol, also known as 1-propanol or propyl alcohol, has a molecular formula of CH3CH2CH2OH (C3H7OH) with a molecular weight of 60.10. It is a colorless, transparent liquid with a smell similar to ethanol, soluble in water, ethanol, and diethyl ether. It is widely used in coatings, paints, adhesives, cosmetics, plastics, disinfectants, food additives, feed additives, synthetic flavors, pharmaceuticals, and many other fields. With the growth of downstream demand, the market for isopropanol is gradually expanding. Baichuan Yingfu data shows that China's isopropanol production increased steadily from 109,300 tons in 2019 to 174,100 tons in 2023, with an apparent consumption of 193,500 tons in 2023. Isopropanol is mainly used for the production of isopropyl acetate, which accounts for about 65% of market demand. Producing one ton of isopropyl acetate consumes 0.618 tons of isopropanol. Isopropyl acetate is mainly used in inks, color printing, and tobacco packaging. According to Baichuan Yingfu, from 2019 to 2023, China's isopropyl acetate production capacity increased from 480,000 tons to 680,000 tons, with production capacity reaching 860,000 tons in October 2024. Zhuhai Qianxin and Wujiang Chemical will each have capacities of 120,000 tons and 100,000 tons to be put into production in 2025, which will significantly drive the demand for isopropanol. Isopropanol is also an important intermediate for pharmaceuticals and pesticides, accounting for 12% and 10% of market demand, respectively. In the pharmaceutical industry, it is used to produce erythromycin, propyl sulfoxide, sodium propionate, while in the pesticide industry, it is used to produce mesulfuron-methyl, isopromorpholine, and glyphosate. Additionally, isopropanol accounts for about 8% directly as a solvent. Supply: There are two main production processes for isopropanol in China. The first is the ethylene carbonyl synthesis of propionaldehyde, which is then catalytically hydrogenated to produce isopropanol. Most domestic enterprises use this method, which is relatively mature. The second process involves the hydrogenation of allyl alcohol to produce 1,4-butanediol, with isopropanol as a byproduct. Only two enterprises in China use this method, and the output is relatively small. In terms of regional distribution, China's isopropanol production capacity is mainly concentrated in the three provinces of Jiangsu, Shandong, and Zhejiang in the East. Baichuan Yingfu data shows that China's isopropanol production capacity increased significantly from 140,000 tons in 2019 to 270,000 tons in 2021, with no new capacity added since then, maintaining around 270,000 tons. There is also no new capacity planned for the next two years. China's isopropanol industry has basically formed an industrial pattern dominated by Shandong Sunway Chemical Group (Nanjing Nuoa), Luxi Chemical Group, Zhejiang Juhua (Ningbo Juhan Chemical), and Nanjing Rongxin Chemical, which almost occupy the entire production capacity. The total industry capacity is about 270,000 tons, with Shandong Sunway Chemical Group at 100,000 tons, Luxi Chemical Group at 80,000 tons, Zhejiang Juhua at 50,000 tons, and Nanjing Rongxin at 40,000 tons. The concentrated supply structure of the industry is good. Thanks to industry improvements, the industry's operating rate has gradually increased from a low of 31% in June 2022 to a high level of 80% in September 2024. In terms of imports and exports, China's imports of isopropanol gradually increased from around 10,000 tons in 2003 to a peak of 92,000 tons in 2019. With the expansion of domestic enterprises and competitiveness starting in 2020, imports gradually decreased to 31,000 tons in 2023. As for exports, before 2019, China's exports of isopropanol were minimal, ranging from tens to hundreds of tons. In 2020, exports significantly increased to 5,600 tons, and continued to rise to 12,000 tons in 2023, gradually becoming a major growth point for China's production consumption. Price: Baichuan Yingfu data shows that the price of isopropanol fluctuated widely from 8,400 to 11,000 yuan/ton from 2017 to August 2020. With the large-scale release of domestic production capacity, the price center has shifted downwards, starting in 2023 from 8,400 yuan/ton and steadily declining to 7,300 yuan/ton in August 2023, and then continuing to fluctuate at a low level. In late June 2024, the price of isopropanol began to increase from a low of 7,400 yuan/ton, and has now risen to 10,800 yuan/ton. According to Baichuan Yingfu, under the strong price increase and stable upstream cost fluctuations, the gross profit margin of isopropanol has increased from a low of -486 yuan/ton in late February 2024 to over 2,100 yuan/ton currently, significantly improving the profitability of isopropanol. At the same time, downstream isopropyl acetate inventories have been steadily declining from a high of 25,400 tons in early March 2024 to 8,300 tons on November 8, 2024. Prices have steadily risen from 6,710 yuan/ton in mid-June 2024 to 9,010 yuan/ton currently, indicating smooth price transmission downstream. Investment advice: The continuous increase in the price of isopropanol will drive the profitability of related companies. It is recommended to pay attention to Shandong Sunway Chemical Group (002469.SZ), Luxi Chemical Group (000830.SZ), and Zhejiang Juhua (600160.SH). Risk warning: Demand lower than expected; new expansion production opportunities.Beyond expectations; Safety and environmental risksQuiero aprender a tocar la guitarra.