Financial Services Association, January 11 (Reporter Chen Kang) Xin Fengming's new investment plan has broken the industry's expectations for balanced production capacity investment in the industry.

After the opening of the market today, the chemical sector crashed. Xinfengming (603225.SH) and Tongkun shares (601233.SH) hit a halt. Shares such as Rongsheng Petrochemical (002493.SZ), Hengli Petrochemical (600346.SH), and Hengyi Petrochemical (000703.SZ) all declined due to an announcement yesterday evening.

On the evening of January 10, Xinfengming announced an investment plan of 20 billion yuan. The wholly-owned subsidiary Tongxiang Zhonghong New Materials Co., Ltd. plans to invest in the construction of “2.5 million tons of differentiated polyester fiber materials per year” and “100,000 tons of polyester film materials projects” with its own capital or self-financing.

“Last night, Xinfengming held an online conference call. It seemed like it was all crowded out,” an industry insider revealed to the Financial Federation. “Originally, everyone expected the industry to be launched in an orderly manner. Xinfengming's move broke this expectation and raised some doubts from the outside world: Will other leading companies such as Hengli, Tongkun, Shenghong, and Rongsheng expand production at the same time?”

Some investors also said that it is recognized in the industry that the polyester industry will slow down production in 2024, and supply is expected to be drastically tightened. As soon as Xinfengming's production expansion announcement is made, the investment logic of tight supply in the industry makes no sense.

Due to poor feedback from investors that night, Xin Fengming made additional disclosure of the proposed project overnight: the project was implemented in two phases, with an investment of about 3.5 billion yuan, a construction period of 3 years, and the construction of 1 250,000 tons/year polyester production unit (cationic fiber products) and 1 400,000 ton/year polyester production unit (differentiated chemical fiber products). The second phase of investment has not yet been planned.

According to the announcement, the 3.5 billion yuan investment in the first phase of construction was mainly self-funded. At the same time, combined with bank loans, the balance ratio was kept within 68%.

“The market is sensitive to this kind of announcement. The reaction is a bit excessive. There has been no change in the company's operations or production. The 20 billion project is a relatively general agreement and a framework. Currently, the company has only clearly planned one phase of the project. 3.5 billion yuan is fine for the company's cash flow, and the additional production capacity of 25+400,000 tons is also within the normal plan.” On January 11, a person from the Xinfengming Securities Department told the Financial Federation that the company's plan to increase production capacity by 400,000 tons in 2024 has not changed yet.

Another concern of the market is whether the Indonesian project jointly invested by Xinfengming and Tongkun Co., Ltd. will be affected, which has also caused Tongkun's stock price to fall as well today. In June of last year, the two giants launched an integrated refining and chemical project in Indonesia, with a total investment of 8.624 billion US dollars, equivalent to about 62.4 billion yuan. The construction period is 4 years.

According to relevant data, by the end of 2023, Tongkun Co., Ltd., Hengyi Petrochemical, Xinfengming, Hengli Petrochemical, Dongfang Shenghong, and Rongsheng Petrochemical may have reached 1290, 644.5, 740, 370, 330, and 1.42 million tons, respectively, and the production capacity of the polyester filament industry reached CR6 or 81%.

In the third quarter of 2023, against the backdrop of the peak demand season and rising oil prices, the price and price spread of filament products reached high points during the year. The profits of Xinfengming and Tongkun shares improved quarterly in the first three quarters, turning losses into profits. This also makes the market optimistic about the industry.

“The cyclical operation of the polyester industry is determined by the supply side, because the demand side of the industry has always been relatively stable. After entering 2024, the expansion of the polyester industry chain has come to an end, and the supply-side growth rate has declined, making everyone more optimistic about the industry.” Zhai Xinyu, a polyester analyst at Zhuochuang Information, told the Financial Federation reporter that everything is normal looking at industry supply and demand so far.