Innovation breakthrough - win-win future
China's silicone industry has been developing rapidly in recent years. As of 2023, the capacity of silicone (folded polysiloxane) is 2.571 million tons/year, and the production is 2.086 million tons, with a year-on-year growth of 11.2% and 8.4% respectively; and the consumption is 1.851 million tons, with a year-on-year super-expected growth of 12%. However, in the rapid expansion at the same time, the silicone industry has also appeared in the new capacity construction too fast, advanced technology into the color is not enough, and other issues, the industry is facing a new round of overcapacity risk.
Monomer overcapacity
According to the Silicon Industry Green Development Alliance (SAGSI), there will be a net increase of polysiloxane capacity equivalent to 430,000 tons in 2024. Assuming that the currently disclosed new capacity reaches production, the surplus situation will be even tighter.
It is expected that in the next five years, with the successive release of new production capacity of domestic silicone enterprises and the elimination of old overseas production capacity, China's polysiloxane output will maintain a relatively high growth rate.
Price return is the trend
New production capacity is gradually put into operation, while the consumption growth rate slows down, it is expected that the price of silicone, especially the basic raw materials, will return to a reasonable level.
First of all, the growth of the domestic consumption market has shifted from high speed to stable. Since the last round of the financial crisis, China's large-scale infrastructure construction investment has been gradually retreating, and the consumption structure of the silicone market, which is dominated by infrastructure and traditional manufacturing, is speeding up the adjustment, and the consumption growth rate is declining significantly. According to SAGSI statistics, the average annual growth rate of China's silicone consumption is about 13.9% from 2019 to 2023, and the average annual growth rate is expected to be about 8.0% from 2024 to 2028.
Secondly, the foreign economic slowdown affects the export market. Affected by the unilateralism of the United States trade and the world economic cycle factors, the world economy showed signs of weakness. 2022 the second half of the year to the first half of 2023, was affected by the decline in the economic growth of the world's major economies, China's export market of silicone materials is weak; 2023 the second half of the year, the export market began to repair, the export volume slowly rebound. 2023 the annual volume of China's polysiloxane imports, exports, and net exports were 8.0%, respectively. In 2023, China's polysiloxane import volume, export volume, and net export volume were 82,000 tons, 325,000 tons, and 243,000 tons respectively, up 5.2%, down 10.2%, and 14.5% year-on-year respectively.
In addition, the local market is facing regulatory risks. Silicone materials will face regulatory issues due to difficult degradation, which has an impact on some of the traditional consumer markets for silicone. For example, in the field of daily chemicals, in January 2018, the European Chemicals Agency (ECHA) announced require to restrict and after January 2020 prohibit the sale of silicone ring D4/D5 concentration ≥ 0.1% in the EU market for showering personal care products; in January 2019, the ECHA announcement proposed to restrict or prohibit the concentration of D4/D5/D6 > 0.1% in the application of personal care products and other some products on the market, and also recommended restricting the marketing of rinse-off cosmetics containing D6 concentrations >0.1%. Silicone rubber and other polymers with residues of >0.1% of a single cyclic body will also face such problems in the future.
Insufficient technological color
From an objective point of view, there is still a generation gap between the domestic silicone technology level and the international advanced level, which is mainly reflected in the following three aspects:
First, the core technology has not been systematically mastered. Take monomer synthesis as an example, the average selectivity of the full caliber of monomer synthesis (including high boiling) in China is about 80%, which is 5~10 percentage points lower than that of multinational companies; the average conversion rate of chloromethane one-way is 35%, which is 20~35 percentage points lower than that of multinational companies. In addition, the “three wastes” and low-value by-products can not be handled strictly and properly, and there is a lack of means to control and handle the key impurities in the products.
Secondly, the gap between energy and material consumption is large, and the level of safety and environmental protection is not high. China's comprehensive energy consumption of tons of siloxane is the world's leading level of 50% to 100% higher, with the average material consumption of 5% to 10% higher, and the corresponding “three wastes” generated an average of one times higher.
Third, the comprehensive cost varies. According to SAGSI calculations, under the premise of guaranteeing safety and increasing investment in environmental protection and governance, about 20% of the existing domestic capacity in the ex-factory cost of siloxane (excluding depreciation and three expenses) and multinational companies comparable to about 11 yuan/kg; about 30% of the ex-factory cost of siloxane in the 12-15 yuan/kg, the rest of the production capacity of the cost of the generally higher.
According to the market capacity and cost distribution model, with the gradual release of new production capacity, the price of siloxane ring is likely to be maintained at RMB 12,000~16,000/ton for a long time, which is lower than the cost line of a considerable portion of the newly-built production capacity and even the established production capacity. Those new projects without technology sources and lack of supporting facilities will face great investment risks.
Efforts should be made in four areas
Because of the current problems faced by the industry, industry insiders suggest that it is necessary to prevent and resolve new low-level duplication of construction in the silicone monomer industry, guide the new social investment in high-end innovative fields with market capacity and development prospects and the domestic market urgently needs to make up for the short board of the key segments, and promote the industry to achieve high-quality development.
First, continue to promote the supply-side reform of the silicone industry, neither own technology nor advanced technology sources of the project investment risk, should be cautious to start;
The second is to take large-scale integrated enterprises as the main body, high-end downstream application-oriented, to further increase the development of important special raw materials and high-end downstream products;
Third, pay attention to the protection of intellectual property rights, intellectual property rights infringement seriously prosecuted in accordance with the law, and effectively safeguard and enhance the industry's innovation enthusiasm;
Fourth, to promote the industry to go out, through the docking “Belt and Road” initiative to prevent and resolve the risk of a new round of excess silicone industry.