According to the 2015 annual report released recently by Hangzhou Hangyang, China’s leading air separation equipment manufacturer and local industrial gas producer, the trend to reduce production capacity and stock in end-user industries in the country in the coming years will definitely have a negative impact on the profitability of the group’s equipment business.
Downstream industries in question include the steel sector and petrochemical industry.
Although the company recorded gross operating income of RMB 5.9bn ($920.5m) in 2015 that was broadly the same as that of 2014 ($919.6m), income of RMB 2.7bn ($413.7m) from equipment manufacturing – which includes air separation plants, ethylene cold boxes, LNG process and package equipment, and other petrochemical equipment – showed a substantial drop of 11.4% when compared with income of RMB 3bn ($466.8m) in 2014.
More specifically, income from the manufacture of air separation equipment dropped 6.5% from RMB 2.6bn ($404.7m) in 2014 to RMB 2.4bn ($378.5m).
On the other hand, however, income from Hangyang’s industrial gas business increased 13.5% from RMB 2.6bn ($417.4m) in 2014 to RMB 3bn ($474m), of which industrial gas sales accounted for RMB 3bn ($473.6m). The gross profit of the industrial gas business stood at 12.58% in 2015. The percentage of industrial gas business in the gross operating income has also increased from 45.4% in 2014 (16.1% in 2011) to 51.49% in 2015.
The company stated that now income from the industrial gas business has surpassed that of equipment manufacturing, the industrial gas business has really become the strategic pillar business of the group. The group now has a total of 27 industrial gas companies across the country, 20 of which are already in operation; total installed capacity will become 1.01 million Nm3/h when all operations are completed and in service.
Looking forward, the company states in its annual report that it will implement several specific actions to maintain a leadership role in the market. Besides improving the energy effectiveness and reliability of its air separation equipment and developing new energy equipment related to cryogenic technology, Hangyang will also put more emphasis on the research and development of specialty gases, mixture gases, high purity gases and rare gases.
Moreover, the company expresses that with the number of branch gas companies increasing, spread out in different parts of the country, and the scale of gas production growing so fast, the difficulty and the risks in management control have increased. Therefore, the company will promote work on energy effectiveness and safe gas production, improve the reliability of gas supply, and ultimately the benefits of the gas business.