Spend the "burning ban" or completely untie, and the year of the dragon will be full of firecrackers. A few days ago, the opinions of the legal work Committee of the standing Committee of the National people's Congress on "local governments need to amend the relevant burning ban order" triggered extensive discussion in the community as soon as it was disclosed. Some analysts pointed out that the loosening of the "ban on burning" will revitalize the fireworks market and drive the release of demand for the entire fireworks industry chain. Affected by this, concept stocks including Cathay Pacific Group (603977.SH) and ST Panda (600599.SH) have recently been moved by the wind and attracted market attention.

Under the trend of sulfur-free fireworks, potassium perchlorate is expected to become the mainstream fireworks oxidant alternative raw materials. However, due to the huge energy consumption and many potential safety hazards, the expansion of potassium perchlorate industry is relatively limited. Under the expectation of the "ban on burning", the fireworks market will be activated and drive the growth of potassium perchlorate demand, and potassium perchlorate manufacturers with capacity advantages will benefit. It is reported that Yongning Technology, a subsidiary of Cathay Pacific Group, is the first drafting and revision unit of the domestic potassium perchlorate industry standard, and its products are mainly used as raw and auxiliary materials for fireworks and firecrackers. Yongning Technology's total profit in the first three quarters has increased by more than three times, and is currently expanding production capacity. Under the trend of continuous release of market demand, the company's performance is expected to usher in a new round of growth.

"Banning Order" Unbinding Fireworks Market Expect to Outbreak

On December 26, Shen Chunyao, director of the Legal Work Committee of the Standing Committee of the National People's Congress, reported to the seventh meeting of the Standing Committee of the 14th National People's Congress on the filing and review work in 2023, which mentioned the case of "a total ban on fireworks and firecrackers is illegal. Referring to the case, the report said, "Some local regulations provide for a total ban on the sale and setting off of fireworks. Some citizens and businesses have proposed a review of the total prohibition."

According to the report, after communication, the formulation authority has agreed to amend the relevant provisions as soon as possible. After the release of the case caused heated discussion, the capital market also reported a high degree of attention to the fireworks sector, Cathay Pacific Group, ST Panda, Poly United (002037.SZ) and other stocks have recently performed strongly.

It is understood that China's ban on fireworks and firecrackers can be traced back to the 1990 s. It was not until 2015 that serious smog and air pollution caused a consensus to ban fireworks and firecrackers, and some places successively issued "ban orders". However, by the beginning of 2023, many places have made adjustments to the policy of "total ban on burning and banning the sale of fireworks and firecrackers.

According to Red Star News, up to now, many places have adjusted and loosened the policy of "total ban on fireworks and firecrackers. For example, on December 12, 2023, Zengcheng District of Guangzhou City proposed to "go to legal retail stores that have obtained the" Fireworks and Firecrackers Business (Retail) License "to purchase fireworks and firecrackers, choose a safe location in a non-prohibited area, and set off them after they are placed smoothly." On December 14, Shenyang issued a notice stating that "the sale and setting off of fireworks outside the prohibited area is conditional in accordance with the requirements of the" Regulations ". In addition, Shanghai, Zibo, Shandong and other places have adopted the real-name system and limited the number of purchases, designated areas and times where fireworks and firecrackers are prohibited and restricted, and allowed to be set off on the Lunar New Year's Eve, the first day of the first lunar month, the third day of the first lunar month, and the fifteenth day of the first lunar month. Loosen the "prohibition order" of fireworks and firecrackers.

It is worth noting that the implementation of the "ban on burning" has gradually shrunk the fireworks market. Data show that the sales amount of fireworks and firecrackers in Liuyang City, Hunan Province, was close to 25 billion yuan in 2018, but it was less than 20 billion yuan in 2020.

Because of this, some analysts believe that adjusting and loosening the "ban on burning" as the Lunar New Year approaches may stimulate the desire to buy more and bring about a blowout in the fireworks market. From the perspective of capital market, the growth of demand is expected to boost the whole fireworks industry chain, and the plate may usher in a good opportunity to reverse the bottom.

Potassium perchlorate demand release enterprises expected to meet performance growth

From the perspective of the industrial chain, the upstream of the fireworks industry is mainly composed of four major chemical components and packaging materials. Among them, the four major chemical components are oxidants, combustible substances, flame coloring substances, and other special effects drugs. The oxidant is mainly potassium nitrate, potassium chlorate, etc. It is understood that the price fluctuation of upstream raw materials has a great impact on the cost and profit of fireworks and firecrackers industry, especially the price of oxidant, which accounts for more than 50% of the raw materials of fireworks and firecrackers.

In the fireworks market due to the "ban on burning" is expected to usher in the outbreak of expectations, the oxidant market has also been optimistic. But specifically, under the trend of non-vulcanization of fireworks, potassium perchlorate as the main oxidant alternative materials, its prospects are particularly worthy of attention.

The League of Nations Securities Research Report pointed out that the fireworks oxidant has gone through iterations, and the safety and environmental protection of potassium perchlorate is better than that of potassium nitrate and potassium chlorate. Potassium perchlorate is an indispensable oxidant in the current research and development of less sulfur and sulfur-free safety and environmental protection agents.

Guolian Securities further pointed out that due to the pollution incident in the main producing area of potassium perchlorate in 2021, a number of production enterprises stopped production and limited production. And because of the production of large energy consumption, safety and environmental protection hidden dangers, the industry expansion is relatively limited.

In this way, although the fireworks market is expected to usher in an improvement in demand under the expectation of the "ban on burning", the new supply may not be able to meet market needs in the short term, so manufacturers with first-mover advantages and production capacity advantages will benefit more.

Cathay Pacific Group recently revealed in an institutional survey that Yongning Technology, the company's holding subsidiary, is the first drafting and revision unit of the domestic potassium perchlorate industry standard. The products are mainly used as raw and auxiliary materials for fireworks and firecrackers, and are mainly used in celebration fireworks, export fireworks and other high-end fireworks. In addition, Yongning Technology has independently developed various specifications including spherical potassium perchlorate to ultra-fine potassium perchlorate. Spherical potassium perchlorate can be used for military propellants, various military ignition drugs and signal flare luminous agents. Other specifications of potassium perchlorate can be used for automobile airbag gas production drugs, carbon dioxide stimulants and chemical reagents, etc. Its downstream uses are extensive and its market space is broad.

Judging from the data of the first three quarters of 2023, the potassium perchlorate market has shown a trend of strong demand and rising prices. During the reporting period, Yongning Technology's operating income and total profit increased by 89.2 and 303.37 respectively year-on-year. The main driving factors were the increase in the price of potassium perchlorate, the increase in demand for fireworks in local celebrations and other activities, and the company's automotive airbags and The sales of military applications have made breakthroughs, and potassium perchlorate has achieved a rise in volume and price.

Cathay Pacific Group also revealed that Yongning Technology is currently preparing to expand production capacity to further meet market demand. Relevant analysis pointed out that with the relaxation of the ban on fireworks and firecrackers in various places, the domestic demand for fireworks and firecrackers will increase accordingly, which will have a positive effect on stabilizing or even increasing the price of potassium perchlorate, and related manufacturers are expected to usher in significant sales revenue and profits. growth