Orient Securities: Basic Chemical Industry: Investment Opportunities for Recycled Plastics from Biodiesel (Report attached)

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Recycled plastics are expected to replicate the dividend period of biodiesel: Europe has increased the blending ratio since 2015, allowing fossil diesel fuel to be added with 20% or 30% biodiesel, and Chinese raw diesel companies have begun to enjoy the dividend period. They started exporting to Europe in 2016 and 2017 respectively, after which they made considerable profits. The European recycled plastic policy is about 5 years behind the biodiesel policy, and the EU SUP plastic ban in 2021 requires that “the proportion of recycled plastic in disposable beverage containers with PET as the main component should not be less than 25% by 2025, and by 2030. not less than 30% per year”, we believe that the recycled plastics industry is also expected to enjoy a period of policy dividends in Europe. In addition, the recent rapid rise in oil prices is expected to accelerate the substitution process of raw diesel for fossil diesel, boosting the demand for raw diesel, and the price of raw diesel has also risen to 10,430 yuan/ton. The rise in oil prices has also led to an increase in the price of virgin PET bottle flakes, which has also driven the price of recycled PET bottle flakes.

In the formal recycling system, recycled plastics are more mature: from the perspective of raw materials, the raw materials of biodiesel and recycled plastics are wastes, which depend on the establishment of a waste recycling system. Biodiesel: Due to the existence of the policy of “not competing with others for grain”, waste oil is mainly used as the raw material of biodiesel in my country. However, the formal waste oil recovery system still needs to be improved. According to statistics, in 2018, the total consumption of edible oil in the country was 34.4 million tons, and the recovered waste oil was about 4.1 million tons, with a recovery rate of only 11.9%. Recycled plastics: The raw materials of recycled plastics are their corresponding virgin waste plastics. Although the overall recycling rate of domestic waste plastics is not high, only 30% in 2019, the recycling rate of PET bottles is as high as 94%. The reason is that my country has a high-efficiency PET bottle recycling system driven by economic interests. , Recycling stations are profitable in the process of recycling waste plastic bottles. In the future, when the demand for biodiesel and food-grade recycled PET explodes, the raw materials of waste PET bottles are relatively abundant, and the impact of demand growth on the price of raw materials is likely to be less than the impact of raw firewood on the price of waste oil.

In the process of development, the industry pattern of recycled plastics is more stable: more and more companies have noticed the dividends of raw wood, such as Beiqing Environmental Energy, Donghua Energy and other companies entering this field. However, raw diesel is a bulk commodity, and the downstream is a fuel oil trader. The certification barrier is not high. We believe that with the release of production capacity, the competition in the industry will intensify, the profitability of the processing link may decline, and the competition among enterprises will turn to Competition for integration capabilities. In contrast, the downstream customers of recycled PET are consumer goods companies. Price is not the primary consideration for consumer goods companies, but safe and stable supply. Companies such as Coca-Cola have extremely strict certification requirements. Different from a perfectly competitive market such as biodiesel, we believe that recycled PET will be relatively stable during the development of the industry, and virgin PET bottle flake companies naturally have advantages in sales channels and are expected to take the lead in the recycling field.

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