Dyes, under the lack of demand there are other concerns
When it comes to dyeing technology, as early as the Paleolithic era, people have already figured out how to decorate their garments with a variety of colors. These colors mainly came from plants, animals or mineral natural dyes. To this day, people’s living standards have risen dramatically, and with the great abundance of material, the types, styles and colors of clothing have also increased rapidly, and all of these, cannot be separated from the dyestuffs.
In China, dyestuff is a large industry with an output value of about 70 billion dollars. With the advancement of supply-side reform, companies in the industry are now basically dominated by giants. However, although these giants are big, they are not much valued by investors, and the valuation level of these companies is also low, and even become the object of investors’ complaints and questions.
Today, we will also talk about the dye industry.
01
The world dyes look at China
Dyes are substances that can make fiber fabrics or other substances colorful, without dyes there is no colorful clothing. For a long period of history, natural dyes were the main products used by human beings, with limited varieties and high prices. However, in the past one or two hundred years, with the progress of organic chemistry, synthetic dyes gradually became the mainstream of dyes and gained rapid development.
Before the 1990s, the world’s dyestuff industry was mainly concentrated in Europe, and around 2000, in order to reduce labor costs and environmental protection inputs, major European dyestuff manufacturers and other dyestuff companies shifted their production capacity to Asia on a large scale, which objectively facilitated the take-off of the Asian dyestuff industry. To date, China has become the world’s largest dyestuff producer, accounting for 70% of the world’s total output in 2021.
Currently, China’s dyestuff production includes disperse dyestuffs, reactive dyestuffs, sulfur dyestuffs, reducing dyestuffs, acid dyestuffs, etc., of which disperse dyestuffs and reactive dyestuffs have the largest output among several types of dyestuffs, with the output of these two types of dyestuffs accounting for 78% of the total dyestuffs output.
Competition Pattern of Disperse Dyes Market
The disperse dyes market is highly concentrated, showing oligopolistic competition. The top companies have high pricing power in the industry, and the industry gross profit margin is high. Compared with disperse dyes, the concentration of reactive dyes industry is relatively low, the competition is relatively fierce, and the gross profit margin of the industry is lower than that of disperse dyes.
For the textile printing and dyeing industry, Zhejiang has the best industrial agglomeration and upstream and downstream support. Zhejiang is a large province of printing and dyeing, Shaoxing is one of the centers of the national printing and dyeing industry, printing and dyeing capacity accounted for more than half of Zhejiang Province, one-third of the country. In addition, Zhejiang has a well-supported petrochemical and chemical fiber industry chain, which is strategically located and very convenient for export.
02
Stable industry pattern, drought and flood
Like other not-so-sexy industries, the dyestuffs industry has a relatively stable industry pattern. Dyestuffs are positioned as a highly polluting restricted industry in China, and it is very difficult to approve new production capacity, especially in Jiangsu and Zhejiang, which are close to the end market, and it has been explicitly stipulated that no more approvals will be issued, so the expansion of production can only be in the form of relocation or technological transformation, and it is concentrated in the leading companies, and the supply of new products will be very limited.
Then we will talk about the upstream and downstream of dyes. The upstream of dyestuff is intermediates, while the upstream of intermediates is petrochemical and coal chemical industry, and the downstream is textile and garment industry. Looking upstream, the raw materials for dyestuffs are mostly primary chemicals of petrochemical and coal chemical industries, and their consumption accounts for a very small proportion of the total output of the whole industry, so the correlation with petrochemical and coal chemical industries is relatively low. Looking downstream, as dyestuffs account for a relatively small proportion of costs in the textile and garment industry and the scale of downstream printing and dyeing factories is relatively small, dyestuffs companies have a strong ability to transmit costs downstream, with timely price changes and very few accounts receivable. In addition, although dyestuffs are easily affected by the cost of intermediates, most of the companies in the industry have their own intermediates production capacity, so the impact of intermediates is not significant.
Therefore, as long as there is no problem with downstream demand, companies in the industry have a certain degree of resistance to fluctuations in prices and other factors.
03
Lack of demand is the biggest pain point
However, the dyestuff industry is currently experiencing the dilemma of insufficient demand.
In 2022, affected by the New Crown Epidemic and the Russia-Ukraine War, dyeing and printing companies are experiencing reduced demand for dyes, poor domestic demand, limited exports of dyes, and greater pressure on companies. According to the National Bureau of Statistics, in 2022, China’s printing and dyeing industry above-scale enterprises printed and dyed fabric production of 55.622 billion meters, a year-on-year decline of 7.52%, clothing, shoes, hats, needles, textile goods retail sales of 1.30 trillion yuan, a year-on-year decline of 6.50%. Influenced by the whole industry, the national dyestuff production in 2022 showed a certain decline compared to 2021.
The situation in the first quarter of 2023 was slightly better, but not optimistic. According to the survey and calculation of China Textile Industry Federation, the comprehensive prosperity index of China’s textile industry in the first quarter was 55.6%, which recovered by 13% and 8.6% compared with the same period of the previous year and the fourth quarter of 2022 respectively. However, the current international market recovery prospects are uncertain, global inflation is still at a high level, the financial system risk rises, the market spending power and consumer confidence in the slow improvement; geopolitical situation is complex evolution of the international trade environment factors of China’s textile industry to participate in the depth of the global production capacity cooperation brings more uncertainty. Although the domestic macro-economic stabilization and recovery, but domestic demand and consumption continued to improve the foundation is still not solid, high cost, profitability compression and other operating pressures are still large, the industry is far from being out of the darkest hour. From the industry leader in Zhejiang Longsheng gross profit rate of the continuous decline can be seen.
04
Under the bright worry, there is another hidden worry
In addition to the lack of consumption, the dyestuffs industry is also facing many problems.
Although the national safety and environmental protection regulations for the dyestuffs industry are becoming more and more strict, there is no doubt that dyestuffs and the downstream printing and dyeing industry have always been a highly polluting industry. Disposal of waste salt by-products is still a major problem for the industry. China’s dyestuff industry produces 400,000 tons of waste salt annually, accounting for 20% of the total waste salt in the chemical industry, and the textile printing and dyeing industry’s wastewater discharge accounts for 8% of the country’s industrial wastewater discharge.
At present, many countries in the world, especially developed countries, have established “green barriers” mechanism to prohibit or restrict the import and use of certain dyestuffs that are harmful to human body or pollute the environment in the form of decrees and regulations. For example, the REACH regulation of the European Union (EU), about 30,000 kinds of chemical products in the EU market and their downstream textile, light industry, pharmaceutical and other products are respectively included in the registration, evaluation and licensing of three management and monitoring systems, and products not included in the management system cannot be sold in the EU market. The “green barriers” will greatly increase the export cost of textile chemicals and textiles, raise the creation cost of new textile chemicals and new textiles, and then restrict the export and development of China’s textile chemicals and textiles.
China’s dyestuff industry is also in urgent need of transformation.
The dyestuffs industry has gone through supply-side reforms and many rounds of consolidation, but it still cannot get rid of the situation of “stupidity”. As mentioned above, dyestuffs originated in Europe, and later China became the world’s No. 1, which is inseparable from the efforts of generations of Chinese dyers and printers. However, it is undeniable that the industrial transfer of dyestuffs is also the result of the globalization of the division of labor. over the past 20 years, China has achieved sustained high-speed economic growth, and the pattern of globalization has experienced a sea of change, and China is no longer the country with the most cost advantage. The textile and apparel industry is gradually moving from China to areas with lower labor costs, such as Southeast Asia. For China’s dyestuffs industry, globalization has changed from an opportunity-dominated industry to one that presents both opportunities and challenges. In the future, the dyestuffs industry should actively transform into a capital-intensive, technology-intensive, talent-intensive, high-input, high-return and innovative industry, anchoring itself in medium- and high-end environmentally friendly dyestuffs, and improving its brand competitiveness and service level. This is the way to the sustainable development of the dyestuff industry.
