Meirui New Material’s 2022 Annual Board of Directors Operation Review

Meirui New Material’s 2022 annual board of directors management review content is as follows:

1. The industry situation of the company during the reporting period

1. Overview of the TPU industry

Polyurethane is a new organic polymer material, known as the "fifth largest plastic", and is widely used in many fields of the national economy because of its excellent performance. The product application fields involve light industry, chemical industry, electronics, textile, medical treatment, construction, building materials, automobile, national defense, aerospace and so on. Polyurethane products have good physical properties and have developed rapidly worldwide since the beginning of industrial production in the 1950s.

TPU industry is a branch of polyurethane industry, located in the downstream of the entire chemical industry chain, closer to the end consumer market. The company's main TPU products are in the middle reaches of the industrial chain. The raw materials such as MDI, polyols, BDO, adipic acid, and EDO required for its production are petroleum and coal derivatives or by-products, and are downstream products of petrochemical and coal chemical industries. The position of TPU in the industrial chain is shown in the figure below:

TPU is a sunrise industry in the new polymer material industry, with a wide range of downstream applications. Compared with general-purpose plastic and rubber materials, TPU has a wide range of hardness, outstanding mechanical properties, excellent high/low temperature resistance, good processing performance, excellent environmental performance, strong plasticity, outstanding designability, excellent transparency, environmental aging resistance, etc. Outstanding characteristics, it has both the high elasticity of rubber materials and the high strength and easy processing properties of plastics. Due to its high strength, high toughness, wear resistance, cold resistance, oil resistance, water resistance, aging resistance, weather resistance and other characteristics unmatched by other plastic materials, it also has high water resistance, moisture permeability, wind resistance, cold resistance, antibacterial, mildew resistance, With many unique functions such as warmth retention, UV resistance and energy release, TPU has become an important part of the material industry. Key materials for industrial transformation and upgrading in high-end manufacturing fields such as sports equipment, electronic appliances, medical and health care, and resource exploration.

2, TPU supply and demand trend

With the upgrading of residents' consumption and continuous technological innovation, the TPU market demand has maintained a steady growth trend in the past five years (2017-2021). In 2017, the domestic TPU consumption was 405,000 tons. It has grown to 602,000 tons in 2021, and the compound growth rate from 2017 to 2021 has reached 10.42%. The domestic TPU market has already accounted for half of the global market capacity1. In 2022, affected by the macro environment, terminal consumption is weak and demand is low. The price of TPU upstream raw materials is at a historically high level, and domestic TPU consumption fell by 5.48% year-on-year to 569,000 tons2.

In terms of production, TPU production has grown steadily in the past five years (2017-2021). The compound annual growth rate is 14.24% 1. In 2022, due to the impact of the macro environment, the growth rate of TPU production will slow down, and the output in 2022 will be 655,600 tons 2, which is basically the same as that in 2021.

The main factors affecting the supply and demand of TPU are: first, the macroeconomic situation at home and abroad affects the demand in the downstream terminal consumption field, which in turn affects the changes in the TPU market demand; Under the chain price transmission, it affects the cost of terminal products, resulting in changes in the demand for alternatives to TPU products; the third is an important breakthrough in core technology and craftsmanship, forming new products and changing the original supply and demand pattern.

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(4) Actively promote the construction of the integrated project of elastomers with an annual output of 200,000 tons in Yantai, Shandong and the first phase of the polyurethane new material industrial park in Hebi, Henan. On the premise of ensuring construction safety and construction quality , speed up the construction progress of the project, and strive to complete and put into production as soon as possible.

3. Possible risks and countermeasures

(1) Risk of price fluctuation of main raw materials

The main direct materials of the company's products are MDI, polyol, BDO, etc. The cost of the above-mentioned direct materials accounts for a relatively high proportion of the production cost, and the price fluctuation of the main direct materials has a great impact on the company's production costs and operating results. Influence. If there is a large fluctuation in the market price of raw materials in the future, the company cannot reduce the impact of raw material price fluctuations and adjust product sales prices in a timely manner through reasonable arrangements for procurement, and the company's production costs and profits will be adversely affected to a certain extent. In response to the above risks, the company will take various measures such as signing strategic procurement agreements with suppliers, flexible procurement and stocking to deal with fluctuations in raw material market prices, reasonably control production costs, and appropriately adjust product prices according to raw material prices and market conditions of TPU products. To ensure the stability of the company's profitability.

(2) Risk of intensified market competition

my country's TPU industry is in a stage of rapid development. On the one hand, with the strong support of national industrial policies, domestic enterprises will continue to increase R&D investment, and large and medium-sized manufacturers will continue to emerge, intensifying market competition; on the other hand, foreign enterprises rely on their strong R&D and capital advantages in The mid-to-high-end market poses a greater impact on domestic companies. In the future, if the company cannot continue to innovate, meet the needs of customers for mid-to-high-end products, and further improve production efficiency, fierce market competition will have an adverse impact on the company's operations. In response to the above risks, the company will continue to increase investment in research and development, strive to maintain industry advantages in technological innovation and new product research and development, and improve production efficiency and reduce costs through intelligent upgrading and transformation.

(3) Risk of environmental protection

The company belongs to the synthetic rubber manufacturing sub-sector under the chemical raw material and chemical product manufacturing industry, and needs to meet the relevant national regulatory requirements. The company's existing production and operation entities and the company's existing and ongoing projects have passed the environmental assessment and verification of the relevant environmental protection departments. The company pays attention to environmental protection investment, and has established an environmental management system, which has passed the ISO14001:2015 environmental management system certification. However, there will still be a certain amount of waste discharged during the production process. If it is not handled properly, it may have a certain impact on the environment. With the transformation of the national economic growth model and the full implementation of the sustainable development strategy, the requirements for environmental protection and cleaner production policies are increasing, and the environmental protection standards may be further tightened. The company may need to increase investment in environmental protection, which will lead to increased production and operation costs. affect the company's operating performance. In response to the above risks, the company will further improve the environmental protection management system, increase investment in environmental protection, and continue to pay attention to the national environmental protection regulatory requirements.

(4) Risk of rising labor costs

Although domestic human resources are relatively abundant, with the gradual disappearance of the demographic dividend, labor costs have shown an upward trend. The continuous improvement of employee wages is conducive to the long-term development of the enterprise and social stability, and it is also a manifestation of corporate social responsibility. If the rising trend of domestic labor costs continues, it will affect the company's future profitability to a certain extent. In response to the above risks, the company will increase investment in intelligent manufacturing systems, improve the company's automated production level, and replace part of the labor with machines to reduce the risk of rising labor costs.

(5) The risk of new business construction falling short of expectations

The construction and operation of the first-phase project of the polyurethane new material industrial park of Meirui Technology may be affected by external environmental factors such as macroeconomics and market environment, as well as internal management factors such as new project management and organization implementation. There is uncertainty about future operating conditions. Due to the adjustment of relevant national or local industrial policies, the implementation of the project may have the risk of delay, change or termination. In response to the above risks, the company will closely track changes in policies and the market environment, take effective management measures, strengthen risk management and control, and timely adjust strategic planning and business strategies to deal with risks; refine the progress nodes of the project, strictly control the progress of project construction, Effectively strengthen the supervision, inspection and management of project construction.

The embodiment of social responsibility of the industry. If the rising trend of domestic labor costs continues, it will affect the company's future profitability to a certain extent. In response to the above risks, the company will increase investment in intelligent manufacturing systems, improve the company's automated production level, and replace part of the labor with machines to reduce the risk of rising labor costs.

(5) The risk of new business construction falling short of expectations

The construction and operation of the first-phase project of the polyurethane new material industrial park of Meirui Technology may be affected by external environmental factors such as macroeconomics and market environment, as well as internal management factors such as new project management and organization implementation. There is uncertainty about future operating conditions. Due to the adjustment of relevant national or local industrial policies, the implementation of the project may have the risk of delay, change or termination. In response to the above risks, the company will closely track changes in policies and the market environment, take effective management measures, strengthen risk management and control, and timely adjust strategic planning and business strategies to deal with risks; refine the progress nodes of the project, strictly control the progress of project construction, Effectively strengthen the supervision, inspection and management of project construction.