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It seems that the policy orientation has been foreseen ahead of time. The civil explosive industry Yahua Group has acquired a company in Inner Mongolia last month.
On April 25, the new “Guidance Catalogue for Industrial Structure Adjustment (2011 Edition)†revised and issued by the National Development and Reform Commission, added a category of civil explosive products to restricted industries.
After years of development, at present, the products of Chinese people’s explosives are in a state of serious oversupply, and the industry concentration is very decentralized. Civil explosive products were included in the restricted category, which means that if companies in the civil explosive industry want to increase their production capacity, they can only start mergers and acquisitions.
This is just a prelude to industry consolidation. "M&A is the major development trend of the industry in the future." According to the plan of the Ministry of Industry and Information Technology, the Yaxing Group Securities Affairs Representative Xiong Xiong told reporters that the civil explosive industry during the "12th Five-Year Plan" period will cut down 60% of enterprises.
Explosive companies will decrease by 2/3 in the next five years
The Ministry of Industry and Information Technology has warned the NDRC of the inclusion of civilian explosive products in the restricted category and plans to integrate the industry in the next five years.
At the end of 2005, the original 405 manufacturing enterprises and 1728 circulation enterprises in China's civil explosive industry were very serious. In 2009, the GDP of the top ten domestic explosive companies only accounted for 27.7% of the entire industry, and no one company had a share of 10% in the domestic market.
Not only that, but also a serious excess capacity. In 2005, the domestic industrial explosives production capacity was 2.6 million tons, which reached 5 million tons in 2009, an increase of 92.31%; while the output growth rate was relatively slow, from 2.4 million tons in 2005 to 2.966 million tons in 2009, an increase of 23.34 %.
The Eagle said, “The capacity utilization rate of the entire industry is indeed very low.†In 2008, as the energy and raw material prices needed for the production of civil blasting equipment continued to rise substantially, the company’s production suffered a total loss. Due to the peculiarities of the civil explosion industry, China imposes price controls on industrial explosives, and companies cannot raise prices at will. Taking into account the general loss in the industry, in 2008, the civil explosion industry generally raised prices by nearly 30%.
At the end of last year, at the 2011 Civil Explosion Industry Working Conference, Wu Fenglai, Director of the Department of Safety of the Ministry of Industry and Information Technology, stated that by the end of the “Twelfth Five-Year Plan†period, the number of civilian explosive manufacturers will be reduced from the current 140 to less than 50, and sales companies will drop. Within 200 companies, we have formed a group of dozens of key enterprises with cross-region advantages, and strive to cultivate one or two large-scale enterprise groups that can compete with international advanced companies.
At present, the domestic A-shares have six publicly listed explosives products, namely, Jiulian Development, Nanling Min, Jiangnan Chemical, Tongde Chemical, Yahua Group, and Leiming Branch. Over the past five years, only four companies, Tongde Chemical, Thunder Technology, Jiangnan Chemical, and Nanling Civil Explosion, have initiated mergers and acquisitions. Due to the rapid expansion of industry capacity, the acquisition has not become the most important way for the company to expand.
In March of this year, Yahua Group issued an announcement that it plans to use part of the over-raised funds to acquire not less than 51% of the shares in Inner Mongolia Kodak Chemical Co., Ltd. The eagle said, "Because of the security risks of civil explosive products, it has a certain sales radius. Therefore, if you want to explore a regional market that is a long way away, the best way is to acquire local companies."
The eagle believes that because the biggest demand side of civil explosive products is mine development, the future direction of mergers and acquisitions is also a relatively concentrated area of ​​mines. The amount of explosives used in the mining industry accounts for 40% of the total demand.
Trends: Blasting Engineering Services
Liu Jun, an analyst at Changjiang Securities, believes that because ammonium nitrate accounts for about 45% of the cost of industrial explosives, the profitability of the industry will mainly depend on ammonium nitrate, where the price of industrial explosives is controlled by the state.
Although ammonium nitrate is a major factor constraining the profitability of private companies, most companies in this industry do not plan to invest in the ammonium nitrate industry. The Eagle told the newspaper that the ammonium nitrate production capacity is also a serious surplus. Although the price is sometimes high, the company has established a good cooperation relationship with customers for a long time, and the negotiation ability is strong. On the other hand, the production of ammonium nitrate is not a civilian explosion enterprise. The company's strengths, so the company hopes to focus more on civilian explosives product development.
The Eagles believe that blasting engineering services will become the development direction of civilian explosion companies in the future. Liu Jun also believes that extending downstream to the field of blasting and circulation is a consideration for private companies to implement integrated solutions.
According to Liu Jun, the price of blasting engineering services can be controlled by the company itself, with high flexibility, and it is sticky in terms of customer retention. At present, six A-share companies have entered the field of blasting engineering, and the blasting business of Jiulian Development is the largest.
The Eagle believes that formerly downstream companies generally purchased explosives through distributors and then asked people to blast the project. “But they are not professional, they have high risks and they have low benefits. For blasters, they provide blasting services directly to customers. Not only can it improve efficiency, but it can also increase sales. Generally, the production period of a mine is several decades, and there is a steady demand for explosives."
In fact, the main profit of the explosives business of Orica Company, the world’s largest blast furnace supplier, originated from blasting service business.
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