KaiYuan Securities: The supply of H acid industry may be tight, and the prices of H acid - reactive dyes may rise

According to the Zhitong Finance APP, Kaiyuan Securities released a research report stating that, according to the Wuhai Rongmei public account, on June 22, Deputy Mayor and Mayor Cui Jingying conducted an on-site inspection of safety production work and risk hazard investigation and rectification in the production frontline. He emphasized the need to strictly implement the main responsibility for safety production, deeply learn from the recent production safety accident lessons, and focus on the technological transformation and upgrading of equipment and facilities. In the future, as the Inner Mongolia Yadong facility undergoes rectification, its H-acid production rate may be affected, leading to a tighter supply in the H-acid industry.

The price of H-acid has already seen a round of increase. As of June 23, 2025, the price of H-acid is 41,700 yuan/ton, an increase of 16% from the price of 36,000 yuan/ton at the beginning of the year; the price of reactive dyes is 23,000 yuan/ton, an increase of 15% from the price of 20,000 yuan/ton at the beginning of the year; the price difference (reactive dye - 0.2 * H-acid) also achieved a 15% increase, indicating that the price of reactive dyes is smoothly transmitted downstream, and the price difference further expands during the product price increase process.

The main viewpoints of Kaiyuan Securities are as follows:

The leading H-acid industry player, Inner Mongolia Yadong, may face rectification, and its H-acid production rate may be affected

H-acid is an important dye intermediate that can be used to produce reactive dyes, acid dyes, and direct dyes. With the intensification of industry competition and stricter environmental regulations, outdated production capacity in the H-acid industry continues to exit. According to the announcement of RTGF and statistics, the effective production capacity of domestic H-acid is less than 60,000 tons, with Inner Mongolia Yadong having a capacity of 20,000 tons/year, making it the leader in the H-acid industry.

According to the Wuhai Rongmei public account, on June 22, Deputy Mayor and Mayor Cui Jingying conducted an on-site inspection of safety production work and risk hazard investigation and rectification in the production frontline. He emphasized the need to strictly implement the main responsibility for safety production, deeply learn from the recent production safety accident lessons, and focus on the technological transformation and upgrading of equipment and facilities, strengthen safety training for personnel, and resolutely prevent various accidents. In the future, as the Inner Mongolia Yadong facility undergoes rectification, its H-acid production rate may be affected, leading to a tighter supply in the H-acid industry.

The price of H-acid has already seen a round of increase, and the price of reactive dyes is effectively transmitted downstream

As of June 23, 2025, the price of H-acid is 41,700 yuan/ton, an increase of 16% from the price of 36,000 yuan/ton at the beginning of the year; the price of reactive dyes is 23,000 yuan/ton, an increase of 15% from the price of 20,000 yuan/ton at the beginning of the year; the price difference (reactive dye - 0.2 * H-acid) also achieved a 15% increase, indicating that the price of reactive dyes is smoothly transmitted downstream, and the price difference further expands during the product price increase process. Currently, in the context of the China-U.S. trade conflict, textile and apparel exports are relatively smooth. If H-acid prices rise in the future, reactive dyes can still pass on cost pressures downstream.

The production of H-acid involves nitration reactions, and there may be strengthened supervision of nitration reaction facilities in the future

In May, an explosion occurred in the nitration workshop of Shandong Youdao Chemical, resulting in five deaths; in the same month, an explosion occurred at a nitrated cotton production factory in Hebei Wuyi, also resulting in five deaths. These incidents all involve nitration reactions, and the production of H-acid also involves nitration reactions, which are restricted reactions in China.

According to the "Directory of Safety Production Process Technology Equipment for Eliminating Outdated Hazardous Chemicals (Second Batch)" released by the Ministry of Emergency Management in March 2024, it is required that 27 types of chemicals, including H-acid, need to transform batch or semi-batch nitration processes into microchannel reactors, tubular reactors, or continuous batch nitration production processes The transformation is to be completed within 2 years, by March 2026. At the same time, the production process of H acid has significant environmental pollution. The wastewater generated during the production of H acid is highly acidic, has high COD, high color, high toxicity, and high salt content, making it difficult to biodegrade and easily causing water pollution.

In 2015, when environmental inspections were relatively strict, most H acid factories that did not meet environmental standards were shut down, causing the price of H acid to rise to a peak of 65,000 yuan/ton. If there are stricter restrictions on the nitration reaction in the future, and the industry's backward production capacity is eliminated, there is a possibility of further price increases for H acid. Currently, the price of H acid is 41,700 yuan/ton, which is more than 50% lower than the historical peak.

Beneficiary Targets

If the rectification of the Inner Mongolia Yadong facility continues, and the backward production capacity in the H acid industry continues to exit, companies related to the H acid-active dye industry chain are expected to benefit. Beneficiary targets include: JinJi (300798.SZ) (with a capacity of 5,000 tons of H acid, 8,000 tons of H acid capacity expected to trial production in the second half of 2025, and 45,000 tons of active dye capacity), RTGF (002440.SZ) (leading active dye producer with a capacity of 100,000 tons of active dye), Zhejiang Longsheng (600352.SH) (70,000 tons of active dye capacity), JiHua Group (603980.SH) (20,000 tons of active dye capacity), and ANOKY (300067.SZ) (15,000 tons of active dye capacity).

Risk Warning

Industry rectification may fall short of expectations, raw material prices may decline sharply, and terminal demand may not follow up as expected