Heavy truck emission standards upgrade spare parts market to be developed

The continued increase in the number of cars has brought greater pressure on urban environmental protection. As of the end of November 2011, China’s car ownership has reached 104 million units, and the 9.4 million units in 1994 have increased by more than 10 times. As the number of car ownership continues to increase, the tail gas emissions also show a rapid growth trend. In urban air pollution in China, the proportion of automobile exhaust emissions has exceeded 70%. At present, China’s car ownership is still at a sustained growth stage. We expect that the future of automobile exhaust emission control will continue to be one of the major focuses of national air pollution control.

The implementation of the heavy truck IV standard will increase restrictions on NOx and PM emissions. In 2004 and 2007, the State II and State III standards were implemented one after another. We expect heavy-duty diesel engines to implement State IV emission standards in the second half of 2012 or early 2013. From the perspective of emission standards, NOx and emissions from heavy truck IV standards have been reduced by 30%, while particulate matter (PM) emissions have been reduced by 50%, which is a significant improvement over the three national standards. Therefore, the technical requirements are also higher. In addition to the use of electronically controlled high-pressure common rail technology to optimize the combustion process, we must also increase the external post-processing equipment to meet the discharge standards.

The choice of technology route. In order to meet the national IV emission standards, there are two main routes that are recognized in the industry today, namely SCR (selective reduction) and EGR (exhaust gas recirculation). In the competition between the two routes, the SCR system has become an industry-recognized technology solution due to better fuel economy, lower fuel and oil requirements, and no need for the engine to undergo technical changes. Judging from the current list published by the EPA, the SCR post-processing system occupies the mainstream of the market. We expect that at the initial stage of the implementation of State IV, the SCR technology route in the heavy truck post-processing system will become the technology of choice for China's national conditions. From a cost point of view, the Scr system will increase the purchase cost of heavy truck users by about 4000-6500 yuan compared with the EGR system. Assuming that the future production price of urea solution will be reduced to 6-8 yuan/liter, the SCR engine will save about 16,800 yuan in fuel cost per year for the user when compared to EGR.

At the end of 2014, the market size of the diesel engine after-treatment system will exceed 20 billion yuan. According to the implementation of national emission standards, the mandatory implementation of the vehicle emission standards will inevitably drive the upgrade of the automotive engine powertrain system and the exhaust gas treatment system. The related technology upgrade will also be accompanied by the expansion of the new component demand market. We assume that the heavy truck IV standard will be implemented in the second half of 2012 or early 2013. By the end of 2014, the market size of the entire diesel aftertreatment system will exceed 20 billion yuan.

The new standard drives the development of related industries in listed companies. With the imminent implementation date of the National IV standard, especially the heavy-duty diesel vehicle IV standard, we expect that the spare parts manufacturers with technological advantages in the post-treatment of tail gas and catalytic reducing agents will usher in a rapid expansion period.

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