The purpose of the investigation, Danhua Technology recently announced that the Tongliao ethylene glycol plant is operating normally under 85% load, and that the output rate of products that have passed indicators such as light transmittance has reached 90%, and plans to proceed with national inspection matters as soon as possible. This breakthrough marks the basic overcoming of major technical difficulties in the coal-to-ethylene glycol process, and has received widespread attention from the market. We attended the shareholders' meeting held by Danhua Technology in Zhenjiang. After the meeting, we exchanged views with general manager Wang Bin and other senior executives on the progress of the company's coal-to-ethylene glycol project and future development plans. AC Express 1. About the operation of the Tongliao Gold Coal Plant: Up to today, Tongliao Gold Coal has been driving continuously for nearly 80 days, and the ethylene glycol load has reached 85% of what is in line with the design (design capacity 200,000 tons of ethylene glycol plus 100,000 tons of oxalic acid, the synthetic gaseous oxalate portion is more than 85%, and the final production of ethylene glycol products is about 460 tons per day, plus 69% load -- editor's note). Since around November 22, the proportion of premium ethylene glycol products that meet petroleum law standards has reached more than 85%; currently, it is around 90%. Currently, the company is contacting the Development and Reform Commission for inspection. According to regulations, if the load of the device is 75% or more, it can already be considered that it has met the standards for inspection, and the light transmittance fully meets the standards of the Petroleum Law, so it can be used in polyester. Currently, although there are many domestic producers of ethylene glycol, the company is the fastest. 2. Regarding the product sales and profit situation of Tongliao Gold Coal: Currently, the price of ethylene glycol including tax is over 8,000 yuan, and the company's coal products are sold at a discount price of 4-500 yuan/ton (after successful promotion in the future, the discount plan will gradually be reduced to 200 yuan or even lower). According to the current operating conditions in Tongliao, the company has a monthly cash flow of tens of millions and a net profit of more than 15 million yuan. Currently, there are many customer purchases, including polyester customers, but large-scale acceptance of the company's products by polyester customers may require another process. 3. Our estimated cost structure of ethylene glycol: Judging from the cost structure of ethylene glycol, the main raw material cost is lignite, and the company's tonnage of products consumes 5.5 tons of 3,000 kcal lignite (including raw materials and energy coal). Currently, the price of tonnes of coal is 260 yuan, and the cost of catalysts is about 100 million yuan per year. Based on the annual production of 150,000 tons, the cost of catalysts per ton is 6-700 yuan. Other raw materials and energy consumption costs are not high. We estimate the cost of its raw materials to be around 2200-2300 yuan/ton. Due to the long-term and repeated modifications of the Tongliao installation, the total investment is around 3.5 billion yuan, which is much higher than the initial planned investment of 2 billion yuan, so the current depreciation cost is higher than expected. Currently, the company's fixed costs and variable costs are basically the same. Based on an average amortization and depreciation cycle of 12 years, we estimate that repair costs account for 40% of depreciation, and amortization and repair costs for tons of depreciation and repair are around 1,900 yuan. The company has 1,200 employees in Tongliao. Based on wages and benefits of 40,000 yuan/year, the estimated labor cost is about 240 yuan/ton. The three costs are calculated at 600/ton. Therefore, the full cost of the company's coal to ethylene glycol plant in Tongliao is 2250+1900+240+600 = 4990 yuan/ton, based on the price of ethylene glycol without tax of 6,650 yuan/ton (about 7,800 yuan/ton including tax), the total profit per ton is 1,650 yuan, and the net profit per ton is 1,2437 yuan. Based on the company's previous announcement of a daily production of 460 tons and 13,800 tons per month, net profit of about 17 million tons is about 17 million tons, which is basically the same. 4. Room for future reduction in ethylene glycol costs: 1. The company is discussing coal mines with Tongliao. In the past, the lignite distributed to the company was 1 km below the strata, and the cost was high. The company has already negotiated with the Tongliao government. In order to possibly replace it with open-pit lignite, the cost of coal is expected to be reduced to more than 100 yuan/ton at that time, the cost of coal is expected to be reduced to more than 100 yuan/ton. In terms of coal prices falling by< /font > 120 yuan/ton, raw material costs can be saved 120*5.5 = 660 yuan/ton. 2. Investment in follow-up installations has been reduced, and depreciation costs are expected to be drastically reduced. Based on an investment of 200,000 tons of 2 billion dollars, depreciation costs can be reduced by about 800 yuan/ton. 3. We estimate that the reasonable number of employees for the 200,000 ton installation is around 300, and the labor cost of additional installations is expected to drop by 180 yuan/ton. Overall, the full cost of future projects is expected to drop to 4990-660-800-180 = 3,350 yuan/ton. 4. Progress of the Henan project: Currently, of the five installations in Henan, the ones that have been built and driven include Xinxiang and Puyang. Among them, the Xinxiang air separation unit is damaged, and the PSA system in Puyang has failed, and is currently undergoing maintenance. It is expected that the Anyang installation will start at the end of this month, the Yongcheng installation will start in the first quarter of next year, and the Luoyang plant is under construction. Tongliao's experience is expected to be successfully replicated in Henan, so the investment amount of the installation in Henan will be significantly less than that of Tongliao, and driving will be relatively smooth. Currently, the uncertainty of the Henan plant lies in the transformation, construction cycle, and raw material costs (Henan synthetic gas comes from a coal industry installation in Henan, and the price may have yet to be determined). The company plans to gradually send technicians to Henan to step up installation construction. 5. Advancement of new coal gasifiers The company is considering using a new gasifier developed by Polytechnic Huitong to modify the Tongliao plant. It is expected that the new gasifier will be tested in Yuncheng, Shanxi in January 2013, and the company will also participate. If it can be used smoothly and the design targets are met, the new gasifier will provide the synthetic gas required for the company's Tongliao plant with 400,000 to 500,000 tons of ethylene glycol, and the investment is small and the efficiency is high. The company plans that if this furnace can be successfully applied, the Tongliao plant will be converted to 400,000 tons in the future. At that time, production capacity, tonne investment, and depreciation will drop drastically, and the total profit level and profit level will rise to the next level. 6. The company's future development plan Since there are many domestic enterprises planning to develop ethylene glycol, the company will consider gradually switching to some high-end and refined products in the future. For example, it extends downstream from dimethyl oxalate. Currently, the company has planned and stocked a large number of products, and plans to launch them gradually. It is also not ruled out seeking to expand the interests of listed companies' ethylene glycol plants at an appropriate opportunity. Furthermore, it is expected that the company's acetic anhydride and other production capacity in Danyang will be disposed of, the equipment will be sold to other companies (already the right target), and the land will be transferred to the government. In the future, Danyang will mainly be used as an administrative and research and development center, and it is expected that there will be a one-time disposal income as soon as next year. Brief comment: We believe that the company has basically solved the core technical problems of coal-to-ethylene glycol, and that process industrialization has been initially completed. As the first major technology for China to break through industrialization first, it is of great significance in the entire chemical industry. Technological breakthroughs have also demonstrated the technical feasibility of producing ethylene glycol from coal, which has an incentive and inspirational effect on other domestic enterprises. According to the company's Tongliao (200,000 tons, 54% interest) +Henan (1 million tons, 27% interest) equity production capacity of 380,000 tons and net profit of 2,000 yuan per ton, the company is expected to be 0.15, 0.31, and 0.93 yuan per share in 2012-14. The uncertainty mainly comes from the price of ethylene glycol and the construction process of the Henan plant.