Guosen: The safety and environmental protection policies are tightening, and dye prices are continuing to rise.

Guosen released a research report stating that the tightening of safety and environmental protection policies has greatly raised the entry barriers for the dye industry and accelerated the elimination of outdated production capacity, resulting in a continued increase in market concentration. Affected by the tightening supply of key intermediates such as reducing agents and H-acid, disperse dyes and reactive dyes will see significant price increases in March and July 2026, respectively, while the cost of dyes constitutes a very low percentage of garment costs and the price transmission is smooth. Guosen's main points are as follows: Dyes: Disperse dyes and reactive dyes are core varieties. Dyes refer to substances that can impart bright and durable colors to fiber fabrics or other materials, with the main application areas being the coloring of various textile fibers. In China, the main types of dyes are disperse dyes (primarily downstream to chemical fibers) and reactive dyes (primarily downstream to cotton and linen). According to the China Dye Industry Association, from 2021 to 2025, China's dye production will increase from 856,000 tons to 983,000 tons, with a CAGR of 3.5%, while the total industry output value will decline from 69.93 billion yuan to 57.12 billion yuan, with a CAGR of -4.9%. The total profit (before tax) will drop from 9.54 billion yuan to 5.01 billion yuan, with a CAGR of -14.9%. During the "14th Five-Year Plan" period, China's dye industry will "increase production without increasing income or profit," reflecting contradictions such as temporary supply-demand imbalance and a product structure tilted towards mid-to-low end. Supply: Environmental protection policies are tightening, increasing concentration in the dye industry. In recent years, the tightening of safety and environmental protection policies has significantly raised the barriers to entry in the dye industry and accelerated the elimination of outdated production capacity, leading to an increase in market concentration. Since 2020, China's total production capacity for disperse dyes has remained at 580,000 tons per year, and by 2025, the capacity utilization rate will increase to 79.31%. Zhejiang Longsheng Group, Zhejiang Runtu, and ZheJiangJiHua Group are the top three enterprises in terms of capacity, with the CR3 in the industry reaching 60.34% and CR5 reaching 77.59%. Since 2020, China's total production capacity for reactive dyes has remained at 454,500 tons per year, and by 2025, the capacity utilization rate will increase to 67.77%. Huali Dye, Zhejiang Runtu, and Zhejiang Longsheng Group are the top three enterprises in terms of capacity, with the CR3 in the industry reaching 50.61% and CR5 reaching 75.91%. Demand: Textile demand shows resilience, and the export volume and price of dyes continue to improve. In the past decade, China's chemical fiber production has experienced an average compound annual growth rate (CAGR) of 6.48%, while during the same period, the average CAGR of disperse dye production was only 0.60%, significantly lower than the growth rate of chemical fiber production. Over the past decade, China's cotton production CAGR was 5.80%, whereas the CAGR of reactive dye production during the same period was only 2.35%, also far below the growth rate of cotton production in China. China is a net exporter of dyes, with exports of synthetic organic dyes expected to reach 266,300 tons and an export value of 8.3 billion yuan by 2025. The top three countries for China's disperse dye exports in 2025 will be Indonesia, Pakistan, and Vietnam. Price: Tightening supply of intermediates leads to rising dye prices. Dyes make up a very low percentage of garment costs, and the downstream textile and apparel industry is less sensitive to dye price increases, allowing for effective price transmission. The typical price transmission path in the dye industry is: upstream aromatics (crude oil, pure benzene, naphthalene) price rises intermediate price rises dye ex-factory price increases simultaneously. Affected by the tightening supply and rising prices of key intermediates such as reducing agents and H-acid, disperse and reactive dyes will see significant price hikes in March and July 2026. Investment Perspective: Leading enterprises will benefit from price increases and rising concentration. The bank believes that global population growth and improving living conditions will lead to steady growth in dye demand for textiles and apparel. China's dye production accounts for over 70% of the global total, and in recent years, safety and environmental protection policies have become increasingly stringent, with small and medium-sized production capacities continually being phased out. The concentration of the dye market is continuously improving. Leading enterprises in the industry possess integrated advantages in the industrial chain and scale, and are expected to benefit from the profit growth brought by rising dye product prices. Risk Warning Risks of intensified market competition; supply risks from fluctuations in upstream raw material prices; environmental protection risks; safety production risks.