Huatai Securities: Force Majeure Production Halt at BASF, Vitamins Enter Super Boom Cycle

According to the Wisdom Finance APP, Huatai Securities released a research report stating that BASF's product supply has encountered force majeure, leading to a significant increase in the prices of related vitamins. The shortage of supply combined with the replenishment cycle has exacerbated the shortage of market inventory, intensifying the reluctance to sell sentiment and driving further price increases for vitamins. It is important to note that the recent BASF explosion incident is only a catalyst for the upward cycle of domestic vitamins, rather than a reversal factor. In the long run, the early-mover advantage of overseas companies will turn into a high operating cost disadvantage as the industry develops, and the addition of production capacity by domestic companies will accelerate the substitution for overseas companies, leading to a long-term upward trend in the domestic vitamin industry. Event: On August 7, 2024, the German chemical giant BASF announced that its Ludwigshafen plant was shut down due to a fire, interrupting the delivery of some VA, VE value chain products, carotenoid products, and fragrance raw materials (violets ketone, linalool, DL-menthol, rose ether, ethyl linalool, neroliol, and isopropyl myristate), and no new orders are being accepted. As a result of the incident, the stock prices of domestic vitamin companies have generally risen. BASF confirms price surge of VE/VE due to factory explosion BASF's product supply has encountered force majeure, leading to a significant increase in the prices of related vitamins. BASF's Ludwigshafen plant in Germany exploded on July 29, and the company officially confirmed the shutdown of the factory on August 7, announcing the affected products. The Ludwigshafen site has an annual production capacity of 14,400 tons/40,000 tons of VA and VE, accounting for approximately 27%/17% of global capacity, with a VA raw material citral production capacity of 40,000 tons/year, accounting for about 66% globally. According to the announcement, the company has started repair work, and it is expected that the factory restart will take a long time, and the resumption time cannot be determined at present. As a result of the incident, the prices of VA/VE have risen sharply since the 29th. According to Baichuan Yingfu data, the average market price on the 7th was 185/125 yuan/kg, an increase of 92.7%/30.9% from the 29th. Improvement in supply and demand situation combined with replenishment cycle, vitamin industry continues to rise The shortage of supply combined with the replenishment cycle has exacerbated the shortage of market inventory, intensifying the reluctance to sell sentiment and driving further price increases for vitamins. Vitamin production capacity is concentrated, and the supply side has a significant impact on prices. Since the beginning of the year, mainstream companies at home and abroad have successively stopped production for maintenance, showing a clear intention to support prices. According to the maintenance plans released by mainstream manufacturers, Xinhecheng Shandong VE plant plans to stop production for maintenance from early July to early September, with an expected maintenance period of 8-9 weeks; Zhejiang Medicine's vitamin E production line plans to start maintenance from mid-July, with a maintenance period of about 2 months; Beisha Pharmaceutical's vitamin E production line plans to start maintenance at the end of August, with an expected maintenance period of 8-10 weeks, all of which are currently in the maintenance period, and the supply has not yet recovered. The demand side is mainly for animal feed. With the turning point of the pig cycle, the rise in pig prices, the increase in single pig profit, the continuous restoration of profitability for pig breeding enterprises, and the peak season for vitamin demand. According to Muyuan Stock's pig sales brief, the company's commodity pig selling price in July was 18.30 yuan/kg, a 3.21% increase from the previous month. At the end of March this year, BASF had already carried out planned maintenance on its VA and VE units, and this incident will lead to an unplanned reduction in global vitamin supply, exacerbating the shortage of supply. Against the background of continuous price growth due to the replenishment cycle and the reluctance to sell sentiment of distributors and the hoarding willingness of downstream manufacturers, the price of vitamin products is expected to maintain an upward trend Overseas companies seek cost reduction cooperation, while domestic companies accelerate capacity replacement It is important to note that the recent BASF explosion incident is only a catalyst for the upward cycle of domestic vitamins, rather than a reversal factor. In the long term, the early-mover advantage of overseas companies will turn into a disadvantage of high operating costs as the industry develops, and the addition of capacity by domestic companies will accelerate the replacement of overseas companies. The prosperity of domestic vitamins is expected to see a long-term upward trend. BASF's Nutrition & Care business sales in Q2 24 decreased by 2.7% year-on-year, with fixed costs rising due to plant maintenance, and the Ludwigshafen production base has been implementing a cost reduction plan since February 23, with multiple factories closing. In addition, the company's spending on plants, equipment, and intangible assets increased by 207 million euros in Q2, related to investments in its new integrated base in China. Although this shutdown was accidental, it aligns with the broader trend of overseas companies shutting down factories, cutting costs, and seeking strategic capacity replacement through cooperation with domestic companies due to performance pressure, aging production equipment, and other issues. This incident has accelerated the reduction of overseas capacity, prompting domestic companies to quickly restore supply, fill the gap, achieve capacity replacement, and capture more market share. Investment Advice It is recommended to focus on companies producing vitamins and intermediates: Xinhecheng, Zhejiang Medicine, Andesun, Hua Yuan Biological, Nantech Technology, Yaxiang Shares, Guangji Pharmaceutical, Jindawei, Wanhua Chemical, etc. Risk Warning Risks of downstream demand fluctuations; risks of production falling short of expectations; risks of significant fluctuations in raw material prices; macroeconomic risks