Analysis and Interpretation of the New Environmental Protection Law

1. The strictest "Environmental Protection Law" in history is enacted, with daily fines for illegal pollution discharge without an upper limit. On April 24, the revised Environmental Protection Law was passed by a high vote in the Standing Committee of the National People's Congress and will come into effect on January 1, 2015.
It is reported that the revision of the Environmental Protection Law mainly includes clarifying ecological protection red lines, governance and response to smog and other air pollution, defining the legal status of environmental supervision agencies, improving administrative enforcement measures, linking pollution discharge fees and environmental protection taxes, among twelve aspects. It further clarifies the government's supervisory and management responsibilities for environmental protection, improves basic environmental protection systems such as total pollutant control and joint prevention and control across administrative regions, and strengthens enterprises' responsibilities for pollution prevention. The number of legal articles increased from 47 to 70.
The revised Environmental Protection Law increases the intensity of punishment as one of the legislative focuses. Chapter 6 "Legal Liability" Article 59 clearly stipulates: "Enterprises, institutions, and other producers and operators who illegally discharge pollutants and are fined and ordered to make corrections, if they refuse to correct, the administrative authority that made the penalty decision may impose continuous daily fines from the day after the order to correct, according to the original penalty amount." In addition to "daily fines," those responsible for falsifying data and illegal discharge will be detained, and environmental protection departments are granted rights such as sealing and confiscation.
2. The new Environmental Protection Law makes adjustments to farms and slaughterhouses
Traditional environmental protection is typified by the 1989 "Environmental Protection Law," which regulated environmental supervision based on point sources, supervising enterprises one by one. Now, 25 years later, environmental pollution is regional and watershed-based, including rural non-point source pollution. The revision of the Environmental Protection Law introduces some watershed and regional adjustment methods, such as for agricultural non-point source pollution, slaughterhouses, and farms. It requires that the selection of slaughterhouses and farms must comply with relevant regulations because they easily cause non-point source pollution. This includes regulations and choices for rural pesticide and fertilizer application, specific provisions for air smog and water watershed pollution, joint prevention and control mechanisms for water and air, and special adjustments for water conservation.
3. The new Environmental Protection Law accelerates the reshuffling of the chemical market, affecting trace element supply sources
1. Impact on the chemical industry
The tightening regulatory environment brought by the new law will undoubtedly have a significant impact on the entire chemical industry.
First, the sales prices of sensitive products will moderately increase. The legal deterrent and huge penalties under the new law are enough to prevent manufacturers from treating illegal discharge as a trivial matter as before. For example, the "daily fines without upper limit" provision can cause a company that exceeds discharge limits to face monthly fines of 3 million yuan and annual fines up to 36.5 million yuan, far beyond the previous maximum fine of 100,000 yuan. Such penalties are unbearable for ordinary companies. Therefore, manufacturers must increase investment in environmental protection facilities to maintain production, and continuous funding is needed to keep these facilities operational. These costs will ultimately be transferred to the products, undoubtedly raising product sales costs and prices.
Second, the spontaneous capacity reduction effect is obvious. For a long time, although calls to eliminate backward production capacity have increased, as long as there is profit, backward capacity will try to survive and share the market. This is the root cause of the increasing elimination of low-end products and disorderly competition among homogeneous products in recent years. Under the new law, the strict legal atmosphere and strong penalties will make manufacturers carefully assess their equipment's environmental adaptability and rationally compare illegal costs with product profits, even without external pressure, leading to wise choices. In this case, some polluting backward capacities will naturally withdraw, improving market supply and demand.
Third, it promotes the return of product value. According to commodity economic laws, product prices depend not only on intrinsic value but also on supply and demand, with the latter playing a decisive role under current product oversupply conditions. Because the new law helps eliminate backward capacity and reduce market supply, it alleviates market competition pressure, allowing product value to return.
For example, in May 2013, the Ministry of Environmental Protection issued a "Notice on Conducting Environmental Inspections of Glyphosate Production Enterprises," deciding to complete a comprehensive environmental inspection of the domestic glyphosate industry within three years by the end of 2015. As a result, the domestic glyphosate market quickly recovered, and product prices steadily rose from less than 20,000 yuan to about 40,000 yuan, doubling rapidly.
Recently, the sharp rise in industrial-grade glycine is also related to increased environmental protection efforts. Hebei is the largest and most concentrated glycine production area in China. Due to environmental pressure, glycine manufacturers operate at only about 30% capacity, causing a large market gap. Additionally, it is currently the peak season for agricultural glyphosate demand. The supply of industrial-grade glycine cannot meet demand, and the significant increase in demand has intensified market supply tension, causing glycine prices to rise sharply from 12 to 18 yuan/kg, an increase of 50%.
2. The trace element market pattern has completely changed
Feed-grade trace element raw materials mostly come from the metal chemical industry and waste recycling industry. Market prices are also affected by both raw material supply and market demand. The former affects raw material supply; when the metal chemical industry is prosperous, raw materials are sufficient and prices fall. The latter relates to feed industry production and sales, with animal husbandry affecting feed usage and indirectly influencing the market demand for feed-grade trace elements.
At the beginning of this year, the domestic economy remained sluggish, residents' consumption levels declined, animal husbandry epidemics occurred frequently, limiting livestock product consumption, and the animal husbandry industry was depressed. Feed companies operated below capacity, and overall demand for feed-grade trace element products showed a downward trend. At the beginning of the year, affected by the poor feed market, copper and zinc prices fell. Recently, as the feed market gradually recovers, copper sulfate, ferrous sulfate, zinc sulfate, and manganese sulfate have shown an upward trend, especially ferrous sulfate and zinc sulfate, which have risen significantly.
As mentioned earlier, the implementation of the new Environmental Protection Law will accelerate the reshuffling of the chemical market, and the trace element industry pattern will also change accordingly. Currently, trace element raw materials are mostly by-products of the chemical industry. After appropriate processing, feed-grade products are produced. The source of raw materials is greatly affected by fluctuations in the chemical industry. Under the extensive production model, feed-grade trace elements are only used as a way to utilize waste, so the product value is naturally not reflected, and the price is low. After the implementation of the new Environmental Protection Law, the chemical industry will be reshuffled, production capacity will decline, the source of trace element raw materials will be limited, and price increases are inevitable. The extent of the increase depends on the impact on the metal chemical industry, but one thing is very clear: as industrial by-products, the era of trace element raw materials priced as low as a few hundred yuan per ton including freight will be gone forever.
In recent years, Xingjia Company has continuously adjusted its business strategy. One of these is extending from producing a single product to the entire trace element industry chain. Through investment, controlling upstream enterprises, and establishing strategic partnerships, it has entered the source industry of trace elements, striving to open up the entire feed-grade trace element industry chain. This move has had a very obvious effect in the early stage on ensuring the safe and stable supply of raw materials, providing strong support for the company's production of high-quality products and stable product supply to the market, laying a material foundation for building Xingjia as a creator of biological trace element culture.
After the new Environmental Protection Law is implemented next year, the trace element market pattern will change, raw material sources will be limited, and supply will tighten. The company's early opening of the entire industry chain is undoubtedly an important step ahead, with obvious advantages in ensuring supply, proving the wisdom and foresight of the company's senior decision-makers, who have prepared well in advance.