Open source securities: the peak of production capacity investment has passed, the supply and demand pattern has improved, and superimposed industry self-discipline to help restore silicone profits

The Zhitong Finance App learned that Open Source Securities released a research report saying that according to Baichuan Yingfu data, the domestic silicone industry currently has only 800,000 tons/year of additional production capacity under construction/planning, and is expected to be put into operation by the end of 2026 (however, considering the current profit pressure on the silicone industry, there is still great uncertainty about its commissioning process). Therefore, looking ahead, supply-side competitive pressure in the silicone industry is expected to ease. Supply side disruptions in the silicone industry may drive silicone profit recovery in the short term. Furthermore, according to the official silicone account, there was a recent fire accident at a chemical company in Zibo, Shandong. The current manufacturing accident may disrupt the supply side of the silicone industry to a certain extent, thereby driving profits in the silicone industry to be repaired in the short term.

The main views of Open Source Securities are as follows:

Supply side: The peak of industry production has passed, and there has been some disturbance on the supply side in the short term

According to Baichuan Yingfu data, projects under construction in the silicone industry were implemented centrally from 2022 to 2024. Each year, additional production capacity reached 77.5, 70,000 tons, and 720,000 tons, respectively, with capacity growth rates reaching 41%, 3%, and 26% respectively. In the future, new production capacity in the domestic silicone industry is very limited, and the supply pattern is expected to gradually improve.

According to Baichuan Yingfu data, the domestic silicone industry currently has only 800,000 tons/year of additional production capacity under construction/planning, and is expected to be put into operation by the end of 2026 (however, considering the current profit pressure on the silicone industry, there is still great uncertainty about its commissioning process). Therefore, looking ahead, supply-side competitive pressure in the silicone industry is expected to ease. Supply side disruptions in the silicone industry may drive silicone profit recovery in the short term.

According to the official silicone account, at noon on July 20, a fire accident broke out at a chemical company in Zibo, Shandong. After the accident occurred, the fire department responded quickly and immediately dispatched more than 10 fire engines to the scene to carry out rescue operations. The chemical company is mainly engaged in R&D, production and sales of silicone materials. Currently, it has a silicone DMC production capacity of about 300,000 tons/year (accounting for about 9% of the total production capacity of the industry), and silicone DMC production in 2024 is about 320,000 tons (accounting for 14.4% of the total industry output in 2024). Currently, profits in the silicone industry have reached the bottom of the cycle. Most companies are in a state of loss, and manufacturers have strong demand for price increases. This manufacturing accident may disrupt the supply side of the silicone industry to a certain extent, which in turn will push the profits of the silicone industry to recover in the short term.

Demand side: Domestic demand and exports are growing steadily, and the new energy sector is contributing a major increase

In terms of domestic demand, domestic demand for silicone is growing steadily, and downstream applications are mainly in construction, electronic and electrical appliances, processing and manufacturing, and textile industries. According to Baichuan Yingfu data, from 2017 to 2024, the apparent consumption of silicone DMC in China gradually increased from 893,200 tons to 1.816,400 tons, with a CAGR of 10.7%. Among them, 2022, 2023 and 2024 were driven by rapid growth in the new energy industry. Domestic silicone DMC consumption increased by 14.7%, 11.1%, and 20.9%, respectively. Also, judging from the downstream consumption structure, construction, electronics, processing and manufacturing industries, and textile industries will account for 25.2%, 23.0%, 14.6%, and 11.5% of domestic silicone DMC downstream consumption in 2024, respectively.

Looking forward to the future, a package of policies will actively boost the real estate market. Demand in the real estate sector is expected to stabilize, and demand in the new energy sector is expected to be rapidly released, which is expected to contribute an important increase (the amount of glue used in 1 GW of photovoltaic installations is about 1,200-1,500 tons, the amount of glue used for new energy vehicles is nearly 7 times that of ordinary passenger cars, and more than 20 kg of bicycles).

In terms of exports, domestic silicone exports continued to grow, with export volume increasing by 34.2% year-on-year in 2024. According to Baichuan Yingfu data, from 2010 to 2024, domestic silicone DMC exports increased from 51,100 tons to 545,700 tons (of which export volume increased 34.2% year-on-year in 2024), and imports fell from 1961,000 tons to 108,800 tons. Currently, overseas silicone companies are facing cost and environmental pressure, and overall production capacity has shrunk. The domestic silicone industry has a cost advantage, and exports are expected to grow steadily in the future.

Recommended and beneficiary targets

Recommended targets: Hesheng Silicon (603260.SH), Xingfa Group (600141.SH); beneficiaries: Sanyou Chemical (600409.SH), Xinan Co., Ltd. (), Dongyue Silicon (300821.SZ), Hengxing Technology (002132.SZ), Luxi Chemical (000830.SZ), etc. 600596.SH

Risk Alerts

Raw material prices fluctuated greatly; downstream demand fell short of expectations; the industry's production expansion process exceeded expectations, etc.