Positive Signals in E-cigarette Export and Regulation Release Report

On July 3, Citic Securities released a report titled "Export Growth Turns Positive, U.S. Regulations Emitting Positive Signals." According to data from the General Administration of Customs, in May 2024, China's e-cigarette exports reached $1.01 billion, showing a year-on-year increase in growth rate turning positive. The improvement in data is mainly due to a significant increase in the quantity of exports, although the average export price has decreased, it is showing signs of stabilization compared to the clear downward trend of the past two years.

In May, the export amount of e-cigarettes to the United States increased by 34.9% to 340 million dollars compared to the previous year, reflecting the strong demand for e-cigarettes in the American market. The export amount to the United Kingdom, however, decreased by 19.0% to 130 million dollars compared to the previous year, continuing the downward trend. The decrease in May was less than in April, with China CITIC Securities attributing this to the launch of innovative products such as compliant large-capacity and screen-equipped e-cigarettes. In April 2025, the UK's ban on disposable e-cigarettes will officially take effect, prompting various brands to accelerate the iteration of their product offerings.

Regulators have recently sent positive signals, following the approval of menthol-flavored products by the United States through PMTA and the gradual relaxation of restrictions on e-cigarette in Australia. China Securities believes that the rampant illegal market is forcing government departments to re-examine their regulatory attitudes, which could benefit the sales of legally operated e-cigarette brands.

According to analysis by CITIC Securities on HNB (Heated Tobacco Products), import data indicates that the core markets of Japan and Germany continue to experience rapid growth in demand. In April 2024, Japan saw a year-on-year increase of +51.8% in HNB imports, while Germany saw a year-on-year increase of +132.1% in March 2024. At the same time, China's HNB exports have shown positive performance, with export value and average price in April-May 2024 increasing by +2.9% and +33.8% respectively.

From a corporate perspective, leading companies are strengthening their presence in the HNB market. Philip Morris International (PMI) is boosting investments in the Ukrainian and Egyptian markets through product promotions, capacity expansions, and mergers and acquisitions. Japan Tobacco International is increasing its HNB investment scale and entering the Middle East and Africa markets.

From a regulatory perspective, the European Union and certain regions in Southeast Asia are enhancing their regulatory efforts. Poland is leading the process of banning the sale of flavored heated tobacco products in response to an EU directive (which prohibits the introduction of flavored heated tobacco products). Vietnam is also set to strengthen its regulations on e-cigarettes and heated tobacco products.

In the future, it is expected that the size of the HNB industry will continue to increase due to growth in core market demand and expansion into high-potential markets.

The macroeconomic pressure has led to weak demand for tobacco products; significant changes in tobacco-related policies and regulations; VUSE alto menthol flavor did not pass the PMTA; alternatives to disruptive vaporization technology pathways; insufficient regulatory efforts for illegal products.

In 2024, the global economy faces uncertainties, with the tobacco industry showing characteristics of rigid demand. Given the frequent positive signals being released by the U.S. e-cigarette regulatory policies, Philip Morris International (PMI) and British American Tobacco have reached a patent settlement on HNB products, leading to improved growth expectations for the new tobacco industry in the second half of the year.