Supply and demand pattern reverses, silicone prices continue to rise (shareholding)

After nearly a decade of bear market, the global silicone industry has regained its vitality. As of last week, the mainstream transaction price in the organic silicon market was 19,800-20,300 yuan/ton, a sharp increase of 8.1% compared with 18,500 yuan/ton at the beginning of last month. On March 6, the price of organic silicon continued to rise by 1,000 yuan to 21,300 yuan/ton.

　Industryinsidersbelievethatthepriceincreaseoforganicsiliconisfirstcausedbythecompletionofovercapacityreductionintheindustry,followedbydownstreamWarmerdemand,coupledwithfactorssuchasrisingrawmaterialpricesandenvironmentalprotectionproductionrestrictions,willprovidesupportforsiliconepricesinthefuture.

Asamajorcountryinthesiliconindustry,mycountry’sproductionoforganicsiliconmonomersaccountsforapproximately70%oftheworld’stotal.Duetosluggishdemandandsevereovercapacity,thedomesticsiliconeindustry’sproductioncapacitybasicallystoppedexpandingafter2014.Startingfrom2015,itenteredtheproductioncapacityclearancephase,andlastyearthesupplyanddemandpatternreversed.

AccordingtocomprehensivestatisticsfromIndustrialSecurities,asoftheendof2016,theactualoutputoforganicsiliconinthecountrywas1.7milliontons,andtheindustry’soperatingrateincreasedbyabout10percentagepointsyear-on-year.Atthesametime,industryconcentrationhasalsoincreased,withthetopfivecompanies’productioncapacitysharerisingto65%.Currently,mycountry’sorganicsiliconmonomerproductioncapacityis2.855milliontons,andtheeffectiveproductioncapacityis2.3milliontons.

Oldproductioncapacityhasbeenwithdrawn,butnewproductioncapacitylackssupplementation.Lastyear,exceptforSichuanSiliconPeak’s100,000-tontechnicaltransformationandthestartoftrialproduction,therewasnonewproductioncapacityintheindustry.

TianfengSecuritiesjudgedthatenvironmentalprotectionwillcontinuetomaintainahigh-pressuresituationin2017.Thecurrentindustryoperatingrateisatarelativelyhighlevelof76%,anditwillbedifficultforsubsequentindustriestoincreasetheoperatingrate.

Inadditiontochangesonthesupplyside,downstreamconsumptionisalsoshowingsignsofwarmth.

AfterenteringMarch,thedownstreammarketoforganicsiliconhasgraduallywarmedup,andpurchaseshaveincreased.Currently,themainstreamtransactionpriceof107rubbermarketisaround20,500-21,000yuan/ton,amonth-on-monthincreaseof5.12%;themainstreamtransactionpriceofrawrubberincreasedby7.5%month-on-month.

Themosteye-catchingperformancelastweekwastheimportedsiliconeoilmarket.DuetothemaintenanceofDowCorningequipmentinMarchandthereductionofequipmentinFebruary,themarketpricecontinuedtorise.Manyagentsevenquoted23,000yuan/ton.Abovethehighprice.

Withtherecoveryofglobalrealestate,thedemandforsiliconedownstreamincludingsiliconerubber,siliconeoil,etc.isgrowingrapidly.Atpresent,theeffectivedomesticproductioncapacityofsiliconeDMCis1.3milliontons,andtheconsumptionandexportvolumeare1.25milliontons.Consideringthatdomesticlarge-scaleequipmentwillundergointensivemaintenancefromMarchtoJune,theindustryexpectsthatsiliconepriceswillcontinuetoriserapidly.

AccordingtoTianfengSecurities’prediction,theindustry’sannualdemandgrowthratewillbe4%inthefuture.90%ofmycountry’ssiliconeproductsaredigestedthroughthedomesticmarket,mainlyintheconstruction,automobileandelectronicindustries.Thelattertwoareexpectedtomaintainmedium-to-lowgrowth.

Fromashort-termmarketperspective,BaichuanInformationbelievesthatthecurrentequipmentstart-upofdomesticenterpriseshasimproved,buttheordersowedbyfactoriesintheearlystagearestillbeingissued,andthemarketsupplywillcontinuetobetight.Inthemediumtolongterm,astheoperatingloadincreasessignificantly,priceincreasesmaybelimited.

A-shares:

Xin’an Co., Ltd.: It is the only domestic organic silicon company that completely converts self-produced monomers into downstream products, with an annual production capacity of 300,000 tons.

Xingfa Group: It has a production capacity of 180,000 tons of silicone monomer.

Sanyou Chemical: Mainly engaged in soda ash and chemical fiber industries, with organic silicon as its subsidiary industry. The company already has a production capacity of 100,000 tons of organic silicon and will build a new 100,000-ton device at the end of 2014. Sanyou Chemical uses 47% of its silicone for its own use and sells 53% to external parties. Data in early August showed that the operating rate of the 100,000-ton unit was low and inventory was tight.