1、 Market size and growth trend
According to a survey by Shangpu Consulting, the global industrial gas industry market size is expected to reach 1.0238 trillion yuan in 2022, and is expected to grow to 1.3299 trillion yuan in 2026, with a CAGR of 6.8% from 2022 to 2026. The domestic market size is about 200 billion yuan, and it is expected to have a CAGR+9.7% from 2022 to 2026, accounting for 21.4% of the global market share by 2026. According to the above data calculation, the proportion of domestic market size in the global market is expected to increase from 19.2% in 2022 to 21.4% in 2026.
The industrial gas industry is growing faster than GDP and has a pro cyclical nature. Industrial gases are mainly used in traditional industries such as steel and petrochemicals, and have steadily grown with economic development. According to a survey by Shangpu Consulting, the growth rate of the industrial gas industry is 2.0-2.5 times that of the global GDP growth rate. The economy is expected to bottom out in 2022, and we look forward to a rebound in the prosperity of bulk gases (oxygen, nitrogen, and argon) in 2023.
The demand structure for industrial gases is continuously optimized and has long-term growth potential. With the development of emerging fields, the proportion of specialty gases is expected to continue to increase. The proportion of special gases in industrial gases in China is expected to increase from 21% in 2022 to 28% in 2026, leading to long-term growth in industrial gases. Electronic specialty gases account for over 60% of specialty gases and are the main driving force behind the growth in demand for specialty gases.
2、 Gas supply mode and competitive landscape
Outsourcing gas supply is mainly divided into two categories: on-site gas production (pipeline gas) and retail gas supply. Retail gas supply can be further divided into tank gas supply and bottled gas supply. According to a survey by Shangpu Consulting, the current proportions of on-site gas production, storage tank gas supply, and bottled gas supply in China are 65%, 21%, and 14%, respectively.
On site gas production refers to investing in air separation equipment at the customer's site to directly supply gas. Typically, a long-term contract of 10-20 years is signed with a single customer, with relatively stable prices and quantities, high financial and service requirements, and stable technical and customer relationships. On site gas production has stable income and cash flow, as well as high industry barriers. The cost of on-site gas production is mainly composed of electricity and depreciation, and the pricing is similar to a "cost markup", so the profitability is also stable and has obvious defensive capabilities during economic downturns. In addition, the on-site gas supply mode also has strong economies of scale and high industry barriers, and manufacturers who enter a certain region first have a strong first mover advantage.
Retail gas supply is a type of gas product sold to downstream customers in the form of storage tanks or bottles, suitable for customers with medium batch demand or customers with fluctuating gas demand and fragmented needs for multiple gases. Retail gas supply has higher profitability and expansion space, but also faces more intense competition. The price of retail gas supply is influenced by market supply and demand, and the sales process involves packaging, transportation, service, etc., which require customer relationships and delivery capabilities. Retail gas supply can be divided into two categories based on different sales processes. The first category of sales entities is on-site gas production stations, where the gas source is surplus products from on-site gas production pipelines, and the profits are still from production and manufacturing; The second type of sales entity is distributors, who purchase gas from pipeline gas suppliers, and then sell it to end customers after packaging and logistics transportation, mainly earning money from "channel sales".
The concentration of industrial gas industry is relatively high, and the domestic market is mainly occupied by foreign-funded enterprises and domestic leading enterprises. In 2022, the concentration of the global industrial gas market reached 53%, while in 2021, the concentration of the Chinese industrial gas market was about 50%. The competition in both global and domestic industries is relatively fierce. The industrial gas industry is prone to forming an oligopoly monopoly pattern: 1) Gas operation projects have exclusivity, with on-site gas production contracts lasting for 10-20 years, during which suppliers are not easily changed, which is not conducive to new enterprises entering; 2) Compared to new gas projects, acquisitions are a less risky and more cost-effective approach, so large companies are more inclined to expand their scale through mergers and acquisitions; 3) The limitation of gas transportation radius has led to regional competition in the industry. Reducing regional competition can enhance profitability and promote the emergence of oligopolistic monopoly patterns.
With the promotion of domestic substitution, domestic enterprises are expected to increase their market share and profitability. The equipment is the foundation for domestic substitution and has now achieved catch-up. The development of global industrial gas leading enterprises such as Linde Group and Air Chemicals has gone through a process from producing gas equipment to carrying out gas business. The localization of gas equipment is the foundation for domestic gas companies to successfully replicate this path. According to the announcement of Hangyang Corporation, the main performance indicators of the super large air separation equipment (80000, 100000, 120000 levels) developed by Hangyang have reached the world's leading level. The quotation for domestically produced air separation equipment is significantly lower than that of other foreign companies. According to the comparison between the localization of 100000 level air separation units and the differentiation of foreign companies, taking the 60000 level air separation unit as an example, Hangyang's quotation will be more than 10% lower than that of foreign companies. As of 2020, Hangyang Corporation had a market share of 43.2% in the domestic air separation equipment market, with a domestic market share of over 75%. The air equipment has basically achieved localization.
3、 Specialty gases and electronic specialty gases
Specialty gases are a type of gas product sold in bottled form to downstream customers. They have the characteristics of difficult production processes, multiple categories, low usage of a single product, customers mainly concentrated in emerging growth areas, high product unit prices, lower customer price sensitivity compared to regular gas, and much higher profitability than regular gas. According to a survey by Shangpu Consulting, the special gas market in China will exceed 40 billion yuan in 2022, with a compound annual growth rate of 19% over the past four years. It is expected to maintain a growth rate of over 15% from 2022 to 2025. The global specialty gas market size is expected to reach 10.68 billion US dollars in 2022, with increasing applicability in manufacturing, electronics, and healthcare applications driving growth.
Electronic special gas is a type of special gas mainly used in the field of electronic information, with downstream industries including integrated circuits (accounting for more than 70%), liquid crystal panels, LEDs, fiber optic communication, crystalline silicon solar cells, etc. According to the China Semiconductor Association, the electronic specialty gas market in China reached 17.4 billion yuan in 2020, with a year-on-year growth rate of 31%. It is expected that the market size will increase to 20 billion yuan by 2022. According to the Semiconductor Industry Association of North America (SIA), electronic specialty gas is the second largest semiconductor material after silicon wafer materials, accounting for 14% of the total amount. The purity of electronic vapor directly affects semiconductor performance, and electronic vapor is widely used in processes such as epitaxy, etching, and photolithography.
The electronic specialty gas market is dominated by foreign investment, with local enterprises accounting for less than 25% of revenue. In 2020, the CR4 of China's electronic specialty gas market was about 60%, with Linde Group and Air Chemicals accounting for more than 50% of the total. Only Yingde Holdings and Jinhong Gas, domestic enterprises, entered the top four. With the development of the domestic semiconductor industry and the increasing demand for high-purity electronic specialty gases, local enterprises are expected to achieve domestic substitution through technological innovation and channel expansion.
4、 Domestic substitution and related targets
In the third-party on-site gas production projects that have already been put into operation, foreign-funded enterprises (Linde Gas, Air Liquide, Air Chemicals, Gas Power) have a total market share of 70%, while domestic enterprises account for 30%. In the new orders for third-party on-site gas production projects, the share of foreign-funded enterprises has decreased to 25%, while the share of domestic enterprises has increased to 75%. The market share of operating projects and new orders in the third-party market of Hangyang Corporation is 9% and 45% respectively. Domestic substitution accelerates, leading to an increase in market share.
Local enterprises rise and select high-quality leaders. Domestic industrial gas companies also have high market value development potential. It is recommended to pay attention to the following related targets:
Hangyang Co., Ltd. is a leading transformed gas supplier for air separation equipment, with strong technological and customer advantages. It is one of the largest on-site gas suppliers in China and actively expands its retail gas supply and specialty gas business. Hangyang Corporation plans to acquire 100% equity of Yingde Holdings, which is expected to promote the strong alliance of domestic industrial gas leaders and further optimize the competitive landscape.
Yingde Holdings: a leading electronic specialty gas company, mainly engaged in the production and sales of specialty gases such as electronic specialty gases, medical gases, food gases, etc. It is one of the largest electronic specialty gas suppliers in China, with a complete research and development and production base, as well as stable customer resources. Yingde Holdings plans to be acquired by Hangyang Corporation, which is expected to achieve synergies in technology, channels, resources, and other aspects between the two parties.
Jinhong Gas: A comprehensive industrial gas supplier mainly engaged in the production and sales of bulk gases, specialty gases, electronic specialty gases, and other industrial gases. It has strong research and innovation capabilities, as well as rich industry experience and customer base. Jinhong Gas has a high market share and technological level in the field of electronic specialty gases, and is one of the few domestic enterprises that can provide a full range of electronic specialty gas products.
summary
The industrial gas industry is a high-quality track with huge market space and growth potential. Industrial gas suppliers have stable income and cash flow, as well as high profitability and industry barriers. With the transformation and upgrading of the domestic economic structure and the increasing demand in emerging fields, the demand structure for industrial gases continues to optimize, and specialty gases and electronic specialty gases have become growth points in the industry. Domestic substitution is accelerating, and domestic enterprises are expected to increase their market share and competitiveness. We suggest paying attention to leading domestic industrial gas companies, especially those with advantages in areas such as air separation equipment, on-site gas production, and electronic specialty gas.