Capital Has Become An Important Threshold For Transformation. If The Filament Tap Is Not Differentiated In The Future, Will It Be Ok?

As a big downstream of petrochemical industry, the fluctuation of oil price has a cost fluctuation on the profit of polyester industry chain, but whether the price rise can be accepted downstream is the key reason to decide the profit of the whole industrial chain. From the perspective of the industry, the downward trend of raw material costs, especially in the outbreak of PTA, glycol production capacity and the overall price in the downstream channel, the pricing power of polyester faucets for their products almost determines whether they can enjoy the excess profits brought by the cost down.

We believe that polyester filament is between commodity and personalized goods. The competition of conventional filament products is fierce. Price difference basically depends on marginal supply and demand. It is difficult for enterprises to get excess returns. However, for differentiated products, the overflow price of product technology content creates a competitive barrier, and enterprises can even get excess profits from cost down.

Polyester faucets compete for differentiation: Hengli, Sheng Hong, Tong Kun, and new Feng Ming.

1. Excellent representative of fine denier: Hengli petrochemical VS Dongsheng Hong.

The same is originated from Suzhou, Hengli Chemical fiber and Sheng Hong polyester filament is known as "differentiation". In fact, no matter from the gross profit margin or from the quantity of patents, the technical content of the two civilian filament is relatively high: on the one hand, from the perspective of disclosure, its gross profit margin is higher than that of other filament enterprises by about 5%; on the other hand, the two investment in R & D is larger.

Therefore, it is necessary to make a contrast between Hengli petrochemical and the silk assets and R & D strength of Dongsheng Hong, comparing the differences in product structure and the future development direction.

Hengli Chemical fiber gross profit moat lies in R & D and steam self confession: no matter from the capacity structure or gross profit structure, Hengli and Sheng Hong are very distinct in the characteristics of differentiated filament: the advantage of Hengli lies in FDY fine denier. We think there are three points:

　　1、在FDY细旦领域，持续的新品研发能力使得公司在FDY产品上有一定的话语权；公司定期报告中持续披露新品情况，2017年年报中披露，公司“涤纶超亮光牵伸丝(锦绣纱)”、“三角异形仿粘胶长丝”、“熔体直纺超细旦半消光扁平丝”产品通过省级新产品鉴定；恒科新材料自主创新研发的“家纺用柔光舒适超细旦异形涤纶FDY”、“熔体直纺亮光轻柔型波浪扁平异形涤纶FDY”、“五叶异形浓染舒爽型涤纶FDY”三项新产品获江苏省高新技术产品认定，2018年年报中披露，恒科新材料FDY新品利润贡献率占比37%，德力化纤细旦丝、超细旦丝、异型丝等高附加值产品占比提升。

2. The support of Su Sheng thermoelectricity from Hengli Chemical Fiber Company on the filament on steam. The increase of processing cost of POY/FDY/DTY products is due to the increase of energy steam consumption. Therefore, if FDY/DTY products can be produced at cheaper energy prices, their competitiveness will be relatively strong, and more specific discussions will be limited to space.

3, Hengli Chemical fiber has a certain scale advantage in the field of FDY: from the perspective of FDY capacity, Hengli Chemical fiber has the largest FDY production capacity and 1 million 100 thousand tons, while the remaining filament production enterprises have only 400 thousand tons of FDY capacity, so Hengli Chemical fiber has a certain scale advantage in FDY products.

The capacity of Sheng Hong DTY is the first in the country and the advantage of scale is outstanding: from the perspective of capacity, Sheng Hong Group has obvious scale advantages (1 million 100 thousand tons), far ahead of other companies (the industry's second level is constant power, and its capacity is around 580 thousand tons). Large enterprises in the industry generally have upstream POY matching, relatively complete specifications, compared with small and medium-sized bomb companies, the scale advantage is obvious. Compared to the equipment investment needed to produce POY, the investment cost of the Lok machine needed to produce DTY is relatively small, so the market is dominated by pure DTY processing enterprises, and the distribution of capacity is small and scattered.

Relying on the advantages of scale and certain research and development capabilities, Sheng Hong has formed 250 thousand tons of bright fiber, 200 thousand tons of direct spinning full dull fiber and 80 thousand tons of cationic fiber differential fiber production capacity. The products are used to make clothing fabrics (such as suits, shirts, sports leisure clothes, mountaineering clothes), bedding (such as quilt, bedspread, mosquito nets) and decorative items (such as curtain cloth, sand release, wall stickers, automotive upholstery cloth).

Two, comparison of traditional silk Giants: Tong Kun shares VS new Feng Ming

Tong Kun and new Feng Ming are quite comparable: in terms of geography, Tung Kun and Xin Feng Ming are all filaments enterprises started in Tongxiang, Zhejiang. From the perspective of production capacity, Tung Kun and Xin Feng Ming were once the one or two in the country, so on the whole, they are two superior enterprises with relatively complete product structure.

From the perspective of development strategy, both of them first increase the capacity of filament production and then develop along the industrial chain (PTA). There are two main differences: 1, the new Feng Ming has done a better job in product differentiation, including the proportion of R & D investment and R & D personnel ratio; 2, the development strategy of filament to PTA has been implemented step by step.

The scale advantage of POY is the main force of Tung Kun and Xin Feng Ming: the sales scale of Tong Kun shares and POY is much larger than that of other competitors in the same industry. It has obvious scale advantages, ranking first and second respectively in the industry. From the Maori structure, the gross profit contribution of POY accounts for 2/3 or more for the two enterprises. The expansion of POY melt capacity direct spinning expansion advantage is the long-term competition strategy of Tong Kun and Xin Feng Ming.

New Feng Ming: relatively new production capacity, competitiveness is also available: according to the new Feng Ming 2018 annual report, the company has 13 sets of melt direct spinning production line, of which 11 sets of direct melt production line after 2010 commissioning, the use of reliable production equipment, advanced technology, high degree of automation, stable technology and low production energy consumption.

The company's polyester equipment adopts the internationally advanced DuPont technology. The Kangtai technology and equipment, spinning equipment mainly adopts the German Barmac technology and equipment, silk cake handling and product packaging mainly adopts intelligent control automatic drop and automatic packaging equipment. The technology adopts three kettle polymerization process, esterification steam energy utilization, esterification and pressurization reaction, on-line cleaning, spinning ring blowing, Wings winding and waste water, exhaust gas reuse technology and a series of technologies to improve product quality and reduce energy consumption, so that the production efficiency and product quality of the company can be further optimized and upgraded.

Differentiated transformation is long, but differentiation has attracted attention.

1. Filamentary giant has not accumulated enough in research and development of filaments.

Lack of R & D and lack of talents: differentiation and development of functional products is a systematic project which requires long-term experience accumulation. China's polyester fiber filament industry started late, and experienced experienced management and engineering personnel are scarce. This has become one of the main obstacles restricting the establishment of new differentiated polyester filament yarn enterprises in China.

One of the important reasons for the differentiation of Hengli Chemical fiber is that the company attaches great importance to the appointment and training of R & D personnel. Jin Guanfan, the core technician of R & D center, is a master's degree in chemical fiber specialty of Han Guoqing University.

With nearly 20 years of experience in the chemical fiber industry, he worked in the Korean company of Gao he and Qingdao Gao He company in Shandong Province, engaged in the production management of POY (FDY), the development of differential products (POY, FDY, DTY) and so on. In 2008, she joined Jiangsu Hengli chemical fibre Co., Ltd. as the Minister of new product development department of the company.

The core personnel of other companies are almost domestically trained, and grow with the company. Limited to the development stage of the industry, the research and development of differentiated fibers is relatively late.

Differentiated fiber into the customer supply chain system has a higher threshold: for conventional fibers, customers mainly assess the enterprises through long-term business transactions, and enterprises will establish long-term and stable business relationship with them after being recognized. For differentiated and functional fibers, downstream manufacturers will often evaluate the history of polyester filament production enterprises, especially the performance of the products in the history, and judge the technological progress and efficiency of the enterprises. After long-term cooperation and understanding, the enterprise will be identified as the supplier and strategic cooperation unit of the enterprise, and the threshold for entering the customer supply chain system is higher.

2, capital will become an important threshold for polyester leading to differentiated transformation.

Melt direct spinning for differentiation requires high capital requirements: for the existing polyester tap, the early development ideas basically follow up with the latest technology and equipment to realize the dilution cost and enhance the scale advantage, which is also a competitive strategy for the melt spinning enterprises. For sliced spinning enterprises, because of its relatively small size, the boat is small and good to turn around, so more efforts should be made to make some difference attempts and compete for a place with differentiated products. If polyester faucet is to be transformed into differentiation, the differentiation of melt direct spinning must correspond to a very high capital barrier.

Here we have three new projects:

Hengli, Xin Feng Ming and Heng Yi new three representative pet projects have three characteristics:

The overall design of the project is large.

The total investment is high and the single ton investment is also higher.

Products are characterized by functionalization and differentiation.

From these three items, we can see that the melt spinning polyester enterprises must make a difference on the basis of large-scale production to make differentiated yarns. This is different from the scale of the sliced spinning enterprises, and such "differentiation" is invested in capital. In view of the statistics of the sliced spinning industry, according to the statistics of China Chemical Fiber Industry Association, there are more than 100 manufacturers of polyester filament yarn produced by slicing spinning technology in China.

In 2017, the output of sliced spinning civilian polyester filament reached about 3 million tons, and Suzhou dragon's capacity as a listed company based on differentiated fiber was only 170 thousand tons. The total investment of new material production project of green composite fiber was only less than 400 million yuan, compared with the large investment of Hengli Chemical fiber, new Feng Ming Zhongyi chemical fiber and Haining Hengyi new material, but the investment of single ton was equal. (Suzhou Long Jie investment project investment reached 10 thousand yuan per ton, Hengli Chemical fiber 1 million 350 thousand tons project investment reached nearly 10 thousand yuan per ton).

3, in the short term, transformation will not be too fast. In the long run, R & D investment will continue to grow.

　　熔体直纺龙头向差异化转型路漫漫：前面提到聚酯企业向差异化转型的两个门槛：研发与资金；研发固然好理解，但资金的门槛除了投资相对较大外，企业的这两年的发展战略对于长丝差异化转型资金的使用也有一定的影响——简言之，目前长丝更多地将发展的中心放在两路：如恒力、盛虹与恒逸将发展的中心放在相关的炼厂建设运营上，前期势必消耗大量的资金，此外投资的进度也受到研发进度与市场等多重因素的影响；对于桐昆、新凤鸣这些企业传统的聚酯龙头而言，近年来的发展战略更多地放在原材料环节的补充上，对于动辄400-600万吨的聚酯体量，对应的PTA需求都在400万吨左右，因此无论对于桐昆还是新凤鸣，PTA的总投资都在70亿元人民币左右——因此对于桐昆、新凤鸣而言，再加大对于差异化项目的大手笔投资显然是比较吃力的。

Based on the above factors, we believe that the domestic melt direct spinning polyester faucet should be transformed into a differentiated one, and it is still a long way to go.

In 2018, R & D investment has seen a significant growth trend: from R & D investment, the investment in R & D of traditional direct spinning enterprises such as Tong Kun and Xin Feng Ming has increased. In 2018, Tung Kun's R & D investment reached 488 million yuan, an increase of 49.32% over the same period last year, and the development and investment of new Feng Ming reached 644 million yuan, an increase of 24.44% over the same period last year.

Although this increase is related to the "13th Five-Year guidance" of the chemical fiber industry association issued by the China Chemical Fiber Industry Association (the "opinions" put forward), by 2020, the proportion of R & D expenditure of large and medium-sized enterprises has increased from 1% to 1.2%, and the amount of authorized profits has increased by 15% annually. However, the growth of R & D investment is bound to play a key role in the accumulation of technology, thus boosting the transformation of the industry to "technological innovation".

If the filament tap is not differentiated, is that ok?

The answer is that it depends on the positioning of the enterprise itself, not to survive, but how long to live and how well to live is unrealistic. The reason is related to the driving force of the development of filament industry. As the raw material of textile and clothing, the variety and characteristics of the filament industry are entirely the transmission of orders through the upstream. That is to say, the fabric characteristics required by the downstream textile and clothing are forcing the upstream filament production enterprises to carry out differentiated reforms. Therefore, the driving force of the long-term development of the industry lies in the new demands of the end consumers on fabrics.

If filament enterprises reject such requests, who will digest the products produced?

Of course, this reform is gradual, but the filaments manufacturing enterprises must accept such a requirement and not be complacent. That is to say, in order to better adapt to the consumer, long-term enterprises must make a gradual attempt of differentiation, otherwise it is very difficult to survive for a long time.