House Renovation Ushers in the Tide, And Waterproof Materials Increase

The quality of the built environment directly affects the quality of people's lives and work. With the continuous improvement of the social system and the living standards, people have increasingly diversified housing choices and consumers have higher and higher requirements for housing quality. The living environment has become an important factor in people's choice of housing.

For buildings in the old city, water leakage is often a headache for people. In recent years, the problem of building waterproofing has been paid more and more attention to and solved. At the current time node, there is still a broad development space for building waterproofing in the future. Affected by many aspects such as infrastructure construction and house renovation, the market demand for waterproof materials continues to remain strong. In recent years, the output of China's building waterproof materials has grown steadily. Public data shows that in 2019, the total output of building waterproof materials was 2.420 billion square meters, a year-on-year increase of 9.4%.

The industrial chain of the waterproof material industry is clearly distributed. The upstream is based on petroleum-based chemical raw materials, and the downstream is the main application market. The application fields of waterproof materials mainly involve construction, transportation infrastructure, municipal engineering and many other industries. The overall development is very closely related to the operation of national infrastructure and real estate investment.

The Upstream Is Affected by Crude Oil Prices

The waterproof industry is a light industry, and raw materials account for a high proportion of production costs. Therefore, the price fluctuation of raw materials has a greater impact on the profits of enterprises.

The raw materials required to manufacture waterproof materials mainly include petrochemical products such as asphalt, SBS modifiers, base oils, and paraffin. The cost of raw materials is closely related to international refined oil. Therefore, fluctuations in international oil prices affect the cost of raw materials, which in turn will cause certain production costs of waterproof materials. In particular, the price fluctuations of bitumen, which has a relatively large proportion of cost, are in line with international oil price fluctuations.

In 2020, due to the impact of the new crown pneumonia epidemic, the world economy has stalled, leading to a sharp drop in international crude oil prices and a sharp drop in the prices of petrochemical products. Data show that in April 2020, the price of Brent crude oil per barrel fell to US$18.18, and the profits of enterprises related to the industrial chain increased accordingly. However, judging from current data, the price of Brent crude oil per barrel has risen to US$70.42 per barrel. The production cost of waterproof materials has increased significantly, and corporate profitability will be affected to a certain extent. Enterprises with weak capital foundations will be affected to a certain extent.

The demand for waterproof materials in the downstream market is mainly concentrated in real estate and infrastructure.

The downstream real estate industry has maintained stable development as a whole. There is a strong demand for waterproof materials. Data shows that from January to November 2020, the total output of asphalt and modified waterproofing membranes was 1.975 billion square meters, an increase of 6% over the same period last year.

Real Estate Has Long-Term Incremental Demand for Waterproof Materials

Currently, the main tone of the real estate industry is to develop in stability. The overall regulatory environment is tightening and the growth rate of commercial housing sales has declined. However, dragged down by the downward trend in house sales and land purchases, the growth rate of the newly started area has also begun to gradually decline. In January and November 2020, the newly-started floor space of houses nationwide was 2.011 billion square meters. It is expected that the consumption of waterproof materials in the early stages of real estate development will weaken the industry's driving force, but in the middle and later stages of housing construction, there will still be updates and replacements of waterproof materials. Overall, the demand for waterproof materials in real estate still exists.

Secondary Decoration Brings the New Driving Force

The decoration cycle is about 10 years. Looking back on the domestic real estate development, a wave of investment was completed from 2005 to 2009. The maintenance of existing buildings has a great demand for waterproof materials. Statistics show that the ownership of various types of housing in China exceeds 40 billion square meters. After 2010, the completed area of housing in China was nearly 1 billion square meters, which greatly exceeded the 5.3 billion square meters in 2005. It is expected that the peak period of house repair is approaching, secondary decoration will gradually become the main market for waterproof materials, and the entire waterproof material industry will continue to grow.

Waterproof materials play a role in the entire house construction process, especially in areas such as basements, indoor kitchens, bathrooms and roofs. Generally, the ratio of roof to basement is related to the new start and construction of real estate, while the kitchen, bathroom and balcony are related to the secondary decoration.

The Industry Structure Is Relatively Fragmented, And the Leading Companies Have Obvious Advantages

At present, the domestic waterproof material industry is relatively fragmented and the market is highly competitive. With the improvement of market access conditions, the gradual improvement of supervision and the increasing pressure on environmental protection, the industry's backward production capacity is gradually clearing out. Listed companies gradually increase their market share by virtue of their strong financial background. Because the waterproof industry belongs to the light industry, the production capacity and customer resources of the company play an important role in the development of the company. With strong capital as the foundation, the company will be in a relatively advantageous position in the industry, and it will be easier to gain a foothold and develop in the industry.

The rapid development of the waterproof industry and its potentially huge market have attracted social capital from all walks of life. As consumers pay more attention to the brand and quality of waterproof products, companies that integrate the advantages of brand, quality, capital and service are expected to stand out in the market, and the industry concentration is expected to further increase.

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