On June 30, the ChiNext Board Issuance Supervision Department of the China Securities Regulatory Commission issued a supplementary announcement that the post-IPO meeting review originally scheduled for the morning of July 1 was postponed. According to incomplete statistics from Yicai Daily, the number of enterprises undergoing post-IPO meeting review has been increasing over the past three years, which is undoubtedly a more prudent and responsible approach. Among these companies, what makes Silinco special is that the various controversies currently surrounding Silinco are mainly focused on the application prospects of MMT, and the outcome of the debate not only determines whether the enterprise can be successfully listed, but also, to a certain extent, adds a piece of evidence as to whether MMT can continue to be promoted and used.

A long-drawn-out debate

    The main opposing views in the current public opinion originated mainly in 2005, at the Sixth International Seminar on Clean Fuels in China and Asia, when Germany's Volkswagen took the offensive, accusing MMT of directly damaging the three-way catalytic converters in vehicle exhaust purification systems, while increasing the content of heavy metals in the atmosphere, harming the environment, having adverse effects on human health, and calling for a ban on the use of MMT.

    This is not a new viewpoint. The dispute over whether MMT has negative effects on vehicle exhaust purification systems has lasted more than 20 years, from abroad to China. Both sides of the dispute have invested a great deal of human and material resources in research on the focus of the dispute, and to this day each side has its own technical arguments. The Volkswagen Group's R&D department once released "results showing that after running the test bench for 179 hours (equivalent to 55,000 km) using gasoline containing MMT, emissions exceeded the standard." However, MMT manufacturers did not accept this result, believing that the automakers' tests were too severe, and that it is inappropriate to assess MMT with this kind of bench test method used to evaluate the durability of vehicle parts. The appropriate way to assess MMT is road testing, and the American company Afton has conducted many large-scale road tests, finding no blockage of the exhaust catalytic converter.

    In fact, the conclusion was already clear long ago. From the perspective of testing, the automakers' test is an internal test whose purpose is to assess the durability of the parts of new models. This kind of test is generally carried out on a bench/rig, with extremely high severity, equivalent to a car running 80,000 km non-stop at 140 km/h, without stopping or cold-starting in between; if the car cannot run 80,000 km non-stop, it is claimed that MMT has blocked the exhaust catalytic converter. The many large-scale road tests conducted by Afton used commercially available vehicles to form a test fleet, with driving routes consisting of highways and city roads, and the driving process included cold starts every day. The result of the road tests was that MMT has absolutely no negative effects on vehicle exhaust purification systems. The two test methods produced two different conclusions. Obviously, the driving style of vehicle consumers is not comparable to the automakers' test method, but is close to Afton's road test method.

    The American Automobile Manufacturers Association once organized a road test of MMT of true significance. The road test was divided into two phases. In the first phase, a fleet of 80 cars of 1996-1997 models using Ford, General Motors, Chrysler, Honda and Toyota was formed, and it was claimed that the program was implemented according to strict, evidence-based test procedures, and that the different kinds of data collected would be more and better than those collected by any single MMT study in the past, and should supersede all existing studies. In the second phase, 40 of the latest models were added, and 16 low-emission models were added at the end of 1998, and a very harsh driving program was adopted instead, with the fleet driving at high speed of 120 km/h for 65% of the time. In October 2002, the American Automobile Manufacturers Association published at the SAE annual meeting the results of the road test that had taken several years and cost more than US$9 million, and made the road test data public. The paper did not report catalytic converter blockage. Third parties statistically studied the published road test data and confirmed that MMT does not cause any harm to vehicle emission control systems. This road test further affirmed Afton's viewpoint.

    The conclusion of the MMT controversy has also been confirmed by a domestic test. In May this year, the State Key Laboratory of Automotive Safety and Energy of Tsinghua University published a report titled "Experimental Study on the Effect of MMT-Containing Gasoline on the Aging Performance of Three-Way Catalysts". The research results showed that only when the catalytic converter inlet temperature is relatively high (820℃), the engine maintains a long-term (200-hour) steady-state condition, and the concentration of MMT in the gasoline reaches 0.018 g Mn/L, will the exhaust catalytic converter blockage problem claimed by automakers occur. Under other continuous steady-state conditions, the effect of MMT-containing gasoline and MMT-free gasoline on catalytic converter back pressure is basically the same.

    An industry expert once said: "China has used MMT for more than ten years, with tens of millions of in-use vehicles, and the annual production and sales of automobiles have been growing at double-digit rates. Moreover, the main body of China's automobile industry consists of foreign joint ventures. To compete for China's large market, many new models are launched at the same time as abroad, but no batch problem of exhaust catalytic converter blockage in in-use vehicles has been found, and automakers indeed cannot collect evidence of catalytic converter blockage in in-use vehicles. Therefore, the use of MMT is safe for vehicles."

    After losing ground technically in the debate over MMT, automakers shifted the focus of the debate to health. This is like a reasoning game: because manganese is a heavy metal, long-term inhalation will affect health. It cannot be said that there is no logic in this at all, but at least it lacks factual support. Manganese, as one of the twelve most abundant elements in the earth's crust, is also a trace element essential to human life, existing in food, water, air and soil. The U.S. Clean Air Act Amendments authorized the U.S. Environmental Protection Agency to conduct extensive health tests on the use of MMT in gasoline. For more than 10 years, the U.S. Environmental Protection Agency has conducted very extensive research on the health effects of MMT, and all the research results have been made public. All the tests have confirmed that the use of MMT in gasoline does not pose a greater risk to any human health or the environment. The Guangzhou Institute of Energy Conversion of the Chinese Academy of Sciences also reached the conclusion: "Information from all official agencies shows that there is currently no evidence that the use of MMT causes effects on human health."

    A most basic fact: MMT is the only antiknock additive allowed to be added under China's current national gasoline standard (GB17930-2006). The EU imposed no restrictions on the use of MMT during the implementation of the Euro IV emission standards from 2005 to 2009, and imposed no restrictions on the use of MMT when the Euro V emission standards were implemented in 2010 either. We have absolutely no need to regard it as a fearsome monster.

MMT after the "National IV gasoline standard"

    If MMT is usable, the next problem to be solved is market capacity and prospects.

    Since MMT was introduced into China's refineries in 1997, the amount of MMT used has risen year by year, and domestic MMT sales have shown a rapid growth trend, increasing from about 100 tons in 2005 to about 1,300 tons in 2009. During the same period, MMT imports increased from 1,050 tons to 1,450 tons. The share of domestic MMT in the domestic market rose from 8.7% in 2005 to 47.27%, and exports went from zero to 300 tons in 2009. The supporters' viewpoint has always been clear: the first factor in the rise of MMT usage is the increased proportion of high-grade gasoline, and the second factor is the continuous growth of total gasoline volume. These two factors will exist for a long time.

    Another viewpoint is also well-founded: in the version upgrades of the national standard for Motor Vehicle Gasoline, the trend of the manganese content is downward.

    Let me briefly explain. First, the manganese content in the national standard for Motor Vehicle Gasoline is designed specifically for manganese-based gasoline antiknock agents. Second, the standard clearly specifies that the form of the manganese content is methylcyclopentadienyl manganese tricarbonyl (MMT). The Motor Vehicle Unleaded Gasoline standard GB17930-1999 is China's first national unleaded gasoline standard. In this standard, the manganese content limit is 0.018 g/L. Under this limit, MMT can increase the research octane number of No. 90 gasoline by 2.5 units. In the upgraded version of Motor Vehicle Gasoline GB17930-2006, the concept of correspondence between gasoline quality indicators and vehicle emission stages was introduced, and the terms "National II stage gasoline" and "National III stage gasoline" appeared, among which the manganese content limit for "National III stage gasoline" is 0.016 g/L. In the version of Motor Vehicle Gasoline GB17930-2011 released on May 12, 2011, the manganese content limit for "National IV stage gasoline" is 0.008 g/L. So will it be even lower, or even ban MMT, at the National V standard? If the amount of MMT added becomes less and less, how can we talk about market prospects?

    The answer to this question is not necessarily so.

    First, because the actual amount of MMT added by China's refineries is not high. According to the 2007, 2008 and 2009 annual reports on Sinopec's oil product production and quality statistics, the manganese content level in Sinopec's MMT-containing gasoline was below 8 mg/L in all years, with 6.02% in 2008, and 26% of the gasoline still had no MMT added. This means that the actual amount of manganese added in domestic MMT gasoline is far lower than the "National III standard" and lower than the "National IV standard" that was only fully implemented in 2014. Therefore, the National IV standard does not pose a major impact on the actual amount of MMT added.

    Second, according to industry insiders, after the actual implementation of the National IV stage of Motor Vehicle Gasoline, although the manganese content limit restricts the concentration of MMT added, it will not necessarily cause a significant decline in the total amount of MMT used. At present, the method of using MMT in refineries is to first blend the various components of the oil product before adding MMT. If the octane number meets the standard, the oil product is shipped out; if not, MMT is added to bring the octane number up to standard before shipping, with MMT as the final adjustable variable. This blending method makes full use of tank capacity and improves blending efficiency.

    After the manganese content limit of 0.008 g/L, the practice of oil product blending is to first blend the various components of the oil product and MMT according to calculated estimated values. If the octane number meets the standard, the oil product is shipped out; if not, MTBE is added to bring the octane number up to standard before shipping, with MTBE as the final adjustable variable. The advantage of this blending method is that all gasoline has MMT added, saving the maximum amount of high-octane components and enabling more high-grade gasoline to be produced; the disadvantage is that MMT is no longer the final adjustable variable, reducing the flexibility of oil product blending and sacrificing some blending efficiency. The characteristic of this blending method is that all gasoline has a fixed amount of MMT added (for example, 0.007 g/L). If this blending method is fully adopted, the total amount of MMT added can be expanded and more high-grade gasoline can be produced.

    Third, judging from the release and implementation dates of the various standards, the transition period from the National II standard to the National III standard is four and a half years, and the transition period from the National III standard to the National IV standard is also four and a half years. Therefore, it can be expected that the implementation transition period of the National IV standard will also be more than four and a half years, i.e., the National IV standard is not likely to be replaced by a new standard until after 2019 at the earliest.

    For Silinco, the implementation of the National IV standard may be even more of a good thing. Currently, in the Chinese gasoline market, only the MMT produced by Silinco and the American company Afton has passed the GB18352.3-2005 National IV stage road test. According to the requirements of the China Association of Automobile Manufacturers document (Zhongqixiezi No. 093), Silinco is the only domestic antiknock additive that meets the "National IV standard". Because Silinco passed the above tests, Sinopec has allowed Silinco's MMT to be the only admitted domestic product.

    Compared with domestic peers, because the above test conditions are harsh, difficult to pass, and the test period is long, other domestic manufacturers have not yet been able to break through the technical barrier from MMT to high-performance MMT. Even if they are confident enough to apply for the test, from applying for the test, completing the test and obtaining approval, it will still take a long time for their products to meet the "National IV standard". Compared with imported American MMT, Silinco also has obvious price advantages. Therefore, after the implementation of the "National IV standard", the domestic market share is expected to tilt toward Silinco.

What are the advantages of MMT?

    In today's world where the concept of green environmental protection is deeply rooted in people's minds, the call for "purely natural" gasoline is understandable. However, considering comprehensively such factors as the environment, cost, market demand, technological level, crude oil properties and the configuration of refining enterprises, reasonable and moderate use of high-octane additives is still necessary.

The advantages of using MMT are:

    1. Meeting the demand for high-grade gasoline. China's crude oil is generally heavy, and the output of light oil accounts for about 20% of the total output. Therefore, the configuration of secondary processing capacity in China's refineries is mainly based on catalytic cracking units (which refine heavy raw materials after primary processing into gasoline and diesel), while the configuration of catalytic reforming units (which refine light raw materials after primary processing into gasoline) is relatively low. This also determines that high-octane components are relatively scarce in the basic composition of gasoline components. This is the basis for the widespread application of high-octane additives. Before discussing the pros and cons of MMT or other high-octane additives, it should first be affirmed that their application has met the rapidly growing demand for high-grade gasoline under the premise that the basic configuration of China's refineries has not changed and the basic composition of gasoline components has not changed. Since 2005, the grade structure of China's gasoline has changed from No. 90 gasoline accounting for more than 50% to, by 2010, No. 90 gasoline accounting for less than 10%, which is mainly attributable to the use of MMT. According to data, in 2010 Chinese refineries used about 3,000 tons of MMT, increasing the output of No. 93 gasoline by more than 12 million tons and No. 97 gasoline by more than 7 million tons.

    2. Energy saving and emission reduction. From the perspective of the refining process, the use of MMT reduces or lessens the degree of refining of gasoline by refineries. When "base gasoline + MMT" is used to replace an equal amount of high-octane gasoline components such as reformate, because the energy consumption of producing base gasoline is lower than that of producing high-octane gasoline, the effect of energy saving and emission reduction is achieved. From the perspective of the application process, MMT directly reduces greenhouse gas emissions by improving combustion efficiency. In 2009, Chinese refineries used about 2,500 tons of MMT, saving 515,000 tons of fuel oil and reducing CO2 emissions by 1.64 million tons.

    3. Cost control. Fundamentally, the structural characteristic of China's refining enterprises is that catalytic cracking dominates, accounting for more than 70%. We can increase the refining severity, and the octane number of gasoline components will increase. However, these changes come at the cost of higher energy and material consumption. Therefore, the cost of increasing the octane number of gasoline components through refining processes is relatively high, while adding an antiknock agent to gasoline is the most economical and effective means of improving the antiknock performance of gasoline. Using MMT to increase the octane number of gasoline by one unit increases the cost of each ton of gasoline by less than 20 yuan. If, instead of using MMT, the octane number of oil products is increased by increasing the degree of refining, the operating cost of the refining units alone would be about 20 times the cost of using MMT, not counting the investment in upgrading refining facilities. These additional costs would ultimately be passed on to consumers.

    4. Energy security. Reducing the manganese addition by one milligram per liter of gasoline means that China must import 1 million more tons of petroleum. Crude oil prices are rising continuously and are highly sensitive to geopolitics, so this point has become even more important. In addition, compared with MTBE, MMT produced through synthesis is not directly linked in price to crude oil prices.

Can MMT be replaced?

    At present, almost all additives that increase the octane number of gasoline are subject to various controversies.

    Currently, the main high-octane additives in the world include MTBE (methyl tert-butyl ether), denatured fuel ethanol and MMT (methylcyclopentadienyl manganese tricarbonyl).

    At the beginning of its use, MTBE was praised for making "the sky over American cities blue again". However, subsequent research showed that while reducing air pollution, MTBE causes water pollution, and was therefore banned in the United States, while Europe and Asia reacted less strongly, and Japan still uses it as a major high-octane oxygenated additive. This is also currently China's main gasoline additive.

    Denatured fuel ethanol has an obvious improvement effect on the emission of harmful substances in exhaust gas, but some studies have also shown that aldehydes such as formaldehyde and acrolein increase significantly. At the same time, its corrosiveness and the characteristic of stratification during long-term storage require the complete renovation of warehousing, transportation, blending equipment, refueling facilities, etc. The most controversial issue is whether China has enough grain to be converted into energy over the long term.

    In addition, purely from a technical perspective, China also has a variety of ether-type gasoline additives such as DIPE, various ester-type gasoline additives such as DMC, and various new gasoline additives such as nano fuel oil additives. Whether they are suitable for application and promotion under China's national conditions still needs to be verified by time.

    We believe that more perfect products will appear in the future, but until then, continuous development and improvement is the feasible strategy.

    We strongly agree with a passage in the article "The Facts About MMT" published in the Securities Daily not long ago: "The use of MMT was originally a purely technical issue, but it has now evolved into a political topic and become a dispute over interests among different industries. Today, China's economy is facing the development bottleneck of resource shortage and ecological degradation, and with the energy crisis becoming increasingly evident, China needs to transform its economic growth model and improve efficiency. Using MMT is one of the effective measures to comprehensively solve energy saving, environmental protection and economic benefits in the refining field."