Overcapacity is the pain point of the current dye industry

Recently, the Secretariat of China Dyestuff Industry Association has paid close attention to the changes in the national epidemic situation in Shanghai and other regions. In the first and mid-May, the staff of the Secretariat of the China Dyeing Association got in touch with nearly 70 member companies by telephone, WeChat and other forms of communication, to fully understand the production and operation of member companies, and do the best of the Association Secretariat to send messages to member companies. Go to the association secretariat for care and condolences, and provide support as much as possible.

Recently, the new crown epidemic broke out in many places in my country, especially in Shanghai and surrounding areas (including Jiangsu, Zhejiang and other places) where the dyes, organic pigments and textile auxiliaries industries in my country are relatively concentrated, and the production of enterprises and the lives of employees have been affected to varying degrees. The Beijing area has been seriously affected by the new crown epidemic recently, and the China Dyestuff Industry Association feels the same. In this more general contact with member companies, we deeply appreciate the difficulties brought by the new crown epidemic to member companies.

With the outbreak of the epidemic and the continuation of the Russian-Ukrainian war, the global industrial chain and supply chain have encountered unprecedented impacts. From the analysis of the information fed back by member companies, the reasons for the greater impact on the production and operation of the dye industry can be summed up in the following four points:

1. Affected by the new crown epidemic and the Russian-Ukrainian war, domestic and foreign demand has been weak, and the production and sales of dyes have declined seriously. The domestic printing and dyeing industry was affected by the epidemic, and the demand for dyes decreased. The Russian-Ukrainian war had a great impact on dye exports, especially exports to Europe and the United States.

2. Affected by the new crown epidemic, the price of some upstream raw materials has risen, and the willingness of downstream demand has declined, resulting in greater downward pressure on dye prices, serious pressure on dye prices, further shrinking profit margins, and the possibility of some enterprises facing losses.

3. Affected by the new crown epidemic, all localities have strengthened personnel management and control, and personnel travel and resumption of work have been restricted, affecting the development of production organization and business activities. At present, although some enterprises have begun to resume production and work, the cost has increased (protection, centralized accommodation in the region, restrictions on cross-regions, etc., and the actual operation level is difficult).

4. Affected by the new crown epidemic, logistics are limited. The domestic logistics speed has slowed down, the freight rate has risen, the transportation of raw materials affects the production organization, and the transportation of products affects the sales. For export logistics, most of the orders need to be transferred from Shanghai Port to other ports. In addition to the domestic transportation difficulties, the lack of port capacity and the sharp rise in freight costs have brought great difficulties to enterprises.

In fact, the above reasons are only the apparent reasons for the difficulties in production and operation of the dye industry due to the impact of the new crown epidemic and the Russian-Ukrainian war. The deep-seated reasons are the overcapacity of the industry, vicious competition, and mutual price reductions.

In recent years, the layout of my country's dyeing and pigment industry has undergone great changes. Some enterprises have been shut down and transferred, and some enterprises are expanding their production capacity. According to incomplete statistics, the capacity of organic pigments has been built, under construction and proposed to exceed 200,000 tons, and there are hundreds of tons of dyes. Some bulk intermediates and printing and dyeing auxiliaries are also expanding their production capacity. Most of the products in the dyeing and pigment industry are currently in a situation of oversupply. If excessive new production capacity is put into production, the industry will face an oversupply situation.

The new and proposed production capacity is too large, the competition among enterprises will be further intensified, and the price competition will become increasingly serious. The raging global epidemic in the past two years has brought an unprecedented blow to the global economic development. During this period, import and export trade has been severely hindered, and the prices of chemical bulk raw materials and intermediates have continued to rise, causing dyeing and pigments in China, which is in the gap between the terminal market and the raw material market. The industry has brought a huge impact. Especially since 2021, the prices of upstream raw materials and energy have risen rapidly. Although the overall output of the dyeing and pigment industry and the main business income are both in positive growth, the price of dyeing and pigments has been squeezed by both the industry and the downstream industry, and the growth rate of total profits has begun. There has been a cliff-like decline, and the total annual profit has generally experienced negative growth or even a serious decline. Some enterprises in the dyeing and pigment industry have already suffered losses. Judging from the performance of the main dyestuff listed companies in the first quarter of 2022, some listed dyestuff companies have suffered a serious decline in profits or even losses, and the entire dyestuff industry has experienced fatigue. This is a very rare phenomenon in the dyestuff industry over the years.

The serious problem of overcapacity in the industry, even if the new crown epidemic and the Russian-Ukrainian war are over, will not improve in the long run. The fatigue of the entire dye industry has been reflected in the prosperity of the dye industry. According to current trends, the dye industry is still frozen. In the long run, whether the dye industry will rebound and recover depends not only on the prosperity of the downstream printing and dyeing industries, but also on the adjustment of the industrial structure of the dye industry. The situation of the dye industry in 2022 will be quite severe.

We hereby advocate the entire industry to adjust the industrial structure, reasonably limit production capacity, compete in an orderly manner, set prices fairly, and avoid maliciously lowering prices. Enterprises in the industry must correctly analyze the current national industrial policy orientation and macroeconomic situation, keep pace with the times, follow the trend, keep the word at the forefront, seek progress while maintaining stability, improve quality while improving, and increase efficiency while improving. All enterprises are requested to pay close attention to production and operation, and adjust production capacity and business strategies in a timely manner according to fluctuations in the upstream raw material market, so as to ensure that the production and sales prices of dyes and pigments are within a reasonable range and stabilize the market. At the same time, it is recommended that all enterprises strengthen management, practice their internal skills, do their best to reduce material consumption and energy consumption, reduce the emission of "three wastes", improve product quality, develop characteristic products, dislocate competition, and reduce the harm caused by homogeneous competition.

We sincerely hope that enterprises affected by the new crown epidemic will actively do a good job in anti-epidemic work in accordance with the requirements of the local government. Here, the association secretariat would like to extend cordial condolences to the dye industry enterprises and their employees who are sticking and fighting in the front line of the fight against the epidemic! We firmly believe that "there is no spring that will not come" and "no epidemic will not pass"! As long as colleagues in the whole industry join hands to fight the epidemic and overcome the difficulties together, we will definitely return to normal production and life, and we will definitely reproduce the colorful spring of our industry!