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Investment mask report: Risk analysis and prospect of Masks supply and demand in China

Since the outbreak of COVID-19, the contradiction between supply and demand of masks in China has become prominent, and "masks are hard to find" has become a common phenomenon. In general, the shortage of stocks behind the rapid increase of demand, the shortage of production due to the outbreak of the epidemic combined with the Spring Festival holiday, and the contradiction between emergency demand and the lagging supply of masks are the main reasons for the severe shortage of masks supply in the short term. However, the supply and demand of masks will gradually balance in the future as the supply of raw materials tends to be stable, the production rate of all provinces further increases, and multiple measures such as the expansion of production capacity and production line innovation encouraged by national policies are implemented one by one.

This issue is divided into three parts: first, mask classification and main technical indicators; second, a brief analysis of the production and marketing chain of masks; third, risk analysis and prospect of supply and demand of masks in China.

1. Mask classification and main technical indicators

Mask is a sanitary product, which is made of non-woven cloth and is used to filter the air entering the mouth and nose of the wearer, so as to prevent harmful gases, smells and droplets from entering and leaving the wearer's mouth and nose. They are generally divided into three categories: civilian masks, medical masks and industrial dust masks. There are many differences in application scenes, main features, implementation standards and production processes among the three. At present, the domestic production of masks is dominated by medical masks, and the production capacity and output account for more than 50%.

At present, domestic medical masks are managed as medical devices. The products of medical masks are generally made of three layers of non-woven cloth, of which the outer layer is spunbonded non-woven cloth, which is waterproof and adopts anti-droplet design to block body fluids and blood and other fluids. The middle layer is melt-sprayed non-woven cloth, which adopts polypropylene melt-sprayed non-woven cloth after electret treatment and serves as the filtering core. The inner layer mainly USES ES non-woven cloth, which plays the role of hygroscopic.

Two, mask production and marketing chain analysis

According to the industrial chain, the production and sale of masks generally include three links: the production of upstream raw materials, the production and manufacture of midstream masks, and the sale of downstream masks.

The upstream raw materials mainly include polypropylene fiber, non-woven cloth, bridge of the nose, ear hanging elastic bands, etc., among which non-woven cloth is the main product used in mask production, while high-melting point polypropylene fiber is the core raw material for non-woven cloth production.

From the point of technology, ordinary mask by using melt-blown non-woven fabric production method (MeltBlowing) were developed, melt-blown method belongs to the polymer extrusion method nonwoven technology, melt-blown non-woven fabric has the melt-blown materials produced by the method of curved channel structure, particle filter can effectively, filterability of about 35%, also calls the melt-blown non-woven fabric made of non-woven products.

However, the production of medical masks should be based on the above - mentioned grounding treatment. The filtering mechanism of medical mask is brown-diffusion, capture, inertial collision, gravity settlement and electrostatic adsorption. The first four are physical factors, which are natural characteristics of non-woven fabrics produced by melting spray. However, to meet the production standards of medical mask, the fibers should be charged and the aerosol containing the novel Coronavirus should be captured by electrostatic. Only the non-woven cloth treated with electret can achieve the filtering property of 95% without changing the respiratory resistance, effectively prevent virus, and reach the standard of medical mask. The raw materials of medical high - melt - spray non - woven fabrics treated by electret are generally referred to as medical high - melt - spray non - woven fabrics.

Iii. Risk analysis and prospect of supply and demand of masks in China

(1) In the short term, masks, especially medical masks, are still in serious shortage

Since the outbreak of the epidemic, the stock of masks in all provinces in China has been in urgent need. Due to the incomplete control of THE COVID-19 epidemic, the combined effect of the Spring Festival holiday and the increased production difficulties caused by the epidemic, it is difficult to balance the supply and demand of masks in the short term. At the same time, due to the epidemic, some countries also saw a rush of masks, which further restricted the export of products, leading to the closure of the import channels of masks in China, which also affected the supply of masks in China to some extent. Ou Xiaoli, director of the Social development department of the National Development and Reform Commission, said the masks still face a large gap as the demand for protective materials increases sharply as work resumes.

In the short term, the supply bottleneck of masks is as follows:

01 The outbreak of the epidemic has caused a rapid increase in the demand for masks in China and accelerated the consumption of existing stocks

The inventory cycle of mask manufacturers is about 1-2 weeks, and due to the clearance of inventory during the Spring Festival holiday, the inventory of masks is relatively limited. At the same time, due to the expiry date of masks, large supermarkets downstream and many hospitals do not stock masks in large quantities. The stocks of surgical masks in many hospitals are only about one week. Due to the sudden outbreak of the epidemic, not only medical workers but also ordinary people have a high demand for masks due to the epidemic prevention needs. The original stock has been consumed in a short period of time and masks are in short supply.

The production of masks is affected by the shortage of upstream raw materials, and the capacity improvement is limited in the short term

Hubei province is the main producing area of non-woven cloth for mask production in China. Pengchang town under the jurisdiction of Xiantao City in Hubei Province is known as the "capital of non-woven cloth". The output of non-woven cloth accounts for 60% of the national output and occupies a quarter of the global market share. Affected by the epidemic, it is difficult for enterprises in Hubei province to start work. Many production lines of non-woven fabric manufacturers in Xiantao are shut down due to the absence of workers, which puts great pressure on the domestic supply of non-woven fabric products with melting and spraying of high-melting fingers. In addition, in order to control the production quality of medical masks and prevent fake and shoddy products from entering the market, Xiantao closed all local civilian mask manufacturers one after another on February 1, with a deadline of February 13. This measure has caused the production capacity of masks in Xiantao to drop by more than half.

At the same time, high fusion refers to polypropylene fiber used in the production of non-woven products manufacturer, mainly to liaoning, henan, shandong enterprises, affected by the outbreak of road transport efficiency is lower, and emergency purchase of medical supplies production machine for logistics speed slow and delay the construction schedule, and all products related to different extent, affected the mask production.

Medical masks can be put on the market only after disinfection for 7 days. The supply time lags behind

In order to meet the inspection and quarantine standards of medical masks, according to the production process of medical masks, after the mask is formed, the manufacturer needs to put the mask in an environment of 400mg/L ethylene oxide (EO) for disinfection, so as to inactivate the macromolecules of microorganisms and achieve the purpose of sterilization. However, ethylene oxide is flammable and explosive and is a carcinogen, so the mask should be left for 7 days for analysis after disinfection. Only after the residual EO value is lower than the required value, can the mask be packaged and delivered to medical workers. Under the premise of the shortage of production, the product listing still needs to face a 7-day lag period, and the short-term emergency relief is more difficult.

The import of medical masks from key countries is restricted, which affects the emergency use in China

According to the United Nations statistics on trade in Goods, in 2018, China's top 10 importers of medical masks were affected by the epidemic in their own countries and faced a shortage of masks. As can be seen from the following data, confirmed cases have also been found in most of China's major importing countries, and many countries are among the TOP10 countries in the number of confirmed cases found. In these countries, especially in Southeast Asia, there has been a shortage of medical masks to some extent, which has forced the country to introduce restrictions on relevant supplies. Even if the government does not take relevant measures to restrict exports, under the situation of domestic supply shortage, China's imports will also face the risk of supply shortage or seller's default, which will make it more difficult to import related products.

(ii) The supply and demand of masks will gradually balance due to multiple positive factors

In the medium term, as the epidemic is gradually brought under control and the country continues to issue preferential policies to encourage mask manufacturers to quickly put into production, coupled with the return of logistics distribution after the Spring Festival holiday, the upstream raw materials and mask manufacturers will gradually recover and expand their production capacity under multiple positive factors. In addition, due to the impact of the epidemic, a large number of masks from domestic export to domestic sales have further increased the supply of masks in China, and the supply and demand of masks will gradually balance.

The state has introduced preferential policies and emergency channels to strongly support the production of epidemic materials

Drug regulatory departments speed up emergency approval of medical devices. In order to prevent and control the epidemic, the NDA asked all provincial drug regulatory departments to actively start the emergency approval process for medical devices while strengthening quality supervision. By February 7, 2020, the provincial Food and Drug Administration had approved 88 applications for registration of medical devices in accordance with the emergency approval procedures for medical devices, including 4 medical protective masks, 17 medical surgical masks, 20 disposable medical masks, and 16 new applications within two days. According to the National Medical Products Administration, as of February 7, China had a total of 63 medical protective masks, 171 medical surgical masks and 364 disposable medical masks.

The state introduced preferential fiscal and tax policies and promised to purchase surplus medical supplies from enterprises at the bottom of their pockets. On February 7, the State Council to deal with will be coronavirus pneumonia outbreak zone spreading mechanism held a press conference, conference according to the relevant ministries and commissions of the state, in addition to the epidemic prevention and control the fiscal and taxation policies to support COVID 18-19, soothe small micro enterprise financing difficult financing your relevant information, in order to encourage enterprises to increase the focus of the shortage of medical protective material with good quality production, to stay after the outbreak, such as excess supply related products in the enterprise to all out by the government procurement purchase more focus on prevention and control of medical supplies.

Many provinces and cities with preferential policies to encourage enterprises to put into production as soon as possible. Some provinces and cities have encouraged enterprises to resume production as soon as possible, and have introduced subsidies for manufacturers of mask machines, which can be awarded up to 50% of the selling price of each (set) equipment. In Guangdong Province, the maximum subsidy for mask manufacturers who buy mask machines to increase production is 80%. The local provincial finance will give a discount of 50% of the re-lending rate of the people's Bank of China for the new loans in 2020 to enterprises designated by the state and the province as the key protection enterprises for epidemic prevention and control and other enterprises of health and epidemic prevention, pharmaceutical products and medical equipment that play a prominent role in epidemic prevention and control. Guangzhou Huangpu District, Guangzhou Development Zone and Guangzhou High-tech Zone took the lead in formulating the first enterprise heating policy in the national development zone, saying that enterprises that resume production of masks before February 10 will receive a reward of 200,000 yuan, and enterprises that rent the area for state-owned enterprises will be exempted from the rent of one month, and the rent of two months will be halved. A number of provinces, cities and regions have introduced relevant incentive policies, including preferential loans, one-time awards, etc.

The supply of raw materials is gradually stable. Some mask manufacturers in some provinces and cities have started production

In 2019, China's polypropylene capacity will be 52 million tons, while in 2020, China will add 7.63 million tons of propylene capacity per year. It is estimated that 25 billion masks can be produced from 100,000 tons of polypropylene fiber, and the upstream raw materials for masks are sufficient. With the resumption of production of polypropylene fiber, the resumption of logistics, raw material supply problems have been solved, to ensure the production of non-woven cloth for mask production.

Under such circumstances, the production chain of masks in China is gradually straightened out, and the production of masks in major provinces is resuming in an emergency. According to data released by the National Development and Reform Commission (NDRC), as of February 11, more than 76 percent of mask manufacturers in China had returned to work, and the utilization rate of their production capacity reached 94 percent, while the utilization rate of medical N95 masks was as high as 128 percent, significantly increasing the production of masks compared with the Spring Festival period.

The production rate of mask enterprises in Shandong province has reached 110.84%. According to data from the Ministry of Industry and Information Technology, as an important base for the production of emergency supplies for epidemic prevention, the vast majority of enterprises in Shandong have achieved full capacity production. As of February 6, the production rate of 32 masks, 3 protective suits, 2 protective masks, 3 disinfectants and 3 disinfectants had reached 110.84%, 100.72%, 115%, 83.07% and 52.25% respectively. It is reported that since January 27 solstice and February 4, shandong province has produced a total of 5.56 million masks, 73,405 protective suits, 137,000 protective masks, 106,300 goggles, 1,305 tons of 75° alcohol and 12,780 tons of 84 disinfectant.

All face mask manufacturers in Shanghai have returned to work. According to statistics, Shanghai has a total of 17 masks and accessories manufacturers, and all of them have returned to work. In the early stage of the epidemic, The daily output of Shanghai was about 400,000-500,000, and most of them were exported. On January 27, the daily output was restored to 800,000; on January 28, it rose to 1.1 million; on January 30, the output of the whole city exceeded 1.4 million; on February 4, it exceeded 2.6 million, which has reached production. In order to meet the epidemic prevention needs, the daily output was changed from export to domestic sales.

Companies in Guangdong province have returned to work and launched robotic mask production lines. As of February 7, 92 of the 129 medical supplies enterprises in Guangdong had started operations, and 35 of the 37 mask manufacturers in guangdong had started operations. On this basis, in order to improve the efficiency of mask production in Guangdong province, enterprises in Guangdong province have transformed and launched flexible AI vision automatic mask machine, and started to use the "robot mask production line" to mass produce masks 24 hours a day with a daily output of over 150,000 pieces since February 10.

The NATIONAL Development and Reform Commission (NDRC) will provide assistance to mask manufacturers that have not resumed production or are operating at full capacity. The National Development and Reform Commission said in the press conference "Novel Coronavirus joint prevention and control mechanism" on November 11 that the State Council will help face mask enterprises that have not yet resumed production to solve personnel, capital and other difficulties encountered in the process of reproduction and promote the resumption of work. For enterprises that have not reached full capacity, we will help them restore their production capacity and support them to work on two or three shifts, so that people can rest while machines do not. We will arrange investment from the central budget to support enterprises that have the conditions to expand production capacity.

Some enterprises outside the industry have added masks production lines to alleviate the shortage of masks within the industry

In order to support epidemic prevention and increase production of masks and other relevant epidemic prevention materials, some non-industry enterprises have added masks production lines. Such as industry Fulian has issued a notice that the new mask production line introduced on February 5 has been put into trial production. It is estimated that the production capacity plan of 2 million masks per day can be realized by the end of February, which will be used for the internal production and epidemic prevention guarantee of nearly one million employees of Foxconn Technology Group. Wuling joint suppliers through the redevelopment of the production line production mask, set up 14 masks production line, including 4 N95 mask line, 10 general medical protective mask line, daily output is expected to reach more than 1.7 million, in this month will be completed and put to use, mainly ease the shortage of medical supplies in the area of guangxi.

In addition, BYD, Daddy Baby, Sinopec and Forts Pharmaceutical have all added mask production lines, with the added production capacity reaching 5 million disposable medical masks per day, 2 million masks per day, 1 million masks per day and 200,000 masks per day, respectively. In addition, listed companies or subsidiaries such as Shanghai Jiajia Industry co., LTD., Mercury Home Textile co., LTD., China Textile Co., LTD., Qingsong Co., LTD., Sanqiang underwear Co., LTD., Red Bean Clothing Co., LTD., And Newxbird also said that they would temporarily change the production line to produce masks and medical protective clothing.

Based on the change information of industrial and commercial registration, since January 1, 2020, solstice and February 7, more than 3,000 enterprises in China have added "masks, protective suits, disinfectants, temperature detectors, medical devices" and other businesses, further increasing the production of masks in China and alleviating the contradiction between supply and demand.

04 export to domestic sales can be further increased, domestic supply of mask products

China's annual production of masks accounts for about 50% of the world's total, making it the largest mask producer and the largest mask exporter. According to the Data of the Ministry of Industry and Information Technology, China's current production capacity of masks is more than 20 million per day. Combined with recent measures to increase production capacity, it is estimated that the production capacity of masks can be increased to 35-40 million per day by the end of February. After delivery, the supply of masks in China will be guaranteed.

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