By Chi Hongquan, China Petrochemical Corporation QiluCompany

From 2017 to 2021, the compound annual growth rate of China's ABS production capacity was 5.9%, and the average annual compound growth rate of apparent consumption was 3.7%. The supply in the domestic market was tight, and the profitability of equipment was high, resulting in the industry maintaining a trend of high production and high start-up. The five-year average operating load was as high as 96.1%. In the next five years, it is expected that 16 companies with a total of 5.785 million t/a of ABS production capacity will be put on the market. The rapid expansion of production capacity will lead to an overall decline in the operating rate of the industry, and the gap between supply and demand in the domestic ABS market may further narrow.

Limited capacity growth leads to high-load operation to ensure supply

Due to the technical barriers to production before 2016, as well as the industry's insufficient operating load rate and low profitability, China's new ABS production capacity was only about 970 000 t/a from 2017 to 2020, with a five-year average annual growth rate of 5.1%. In 2021 the pace of domestic ABS plant capacity expansion was accelerated, and the new production capacity was 500 000 t/a during the year, hitting a new high in the past five years, as shown in Figure 1. As of the end of 2021, the domestic ABS production capacity reached 4.675 million t/a, an increase of 11.7% year-on-year; the output was about 4.555 million tons, an increase of 11.7% year-on-year; there were 13 production enterprises, of which the production enterprises with an annual production capacity of more than 400 000 tons: Ningbo Lejin Yongxing, Zhenjiang Chimei, Jilin Petrochemical, Ningbo Taihua and Tianjin Dagu had a total production capacity of 3.18 million t/a, accounting for 66.7% of the country's total production capacity. See Table 1 for details. From the perspective of the nature of the enterprise, the proportion of domestic ABS joint ventures and foreign-funded enterprises has remained high by virtue of the advantages of patented technology and large-scale production. In 2021, the total production capacity of joint ventures and foreign-funded enterprises was 3.23 million t/a, accounting for 68% of the total domestic production capacity, an increase of 3 percentage points year-on-year; state-owned enterprises were stably rank second by virtue of their advantages in corporate operation and technology, with a total production capacity of about 1.4 million t/a in 2021, accounting for 30% of the total production capacity, a decrease of 4% year-on-year; the production capacity of private enterprises increased from 43 000 t/a in 2020 to 95 000 t/a in 2021, and the production capacity ratio increased to 2%.

Figure 1 Statistics of China's ABS production capacity from 2017 to 2021 (10kt/a)

China's ABS domestic production capacity is mainly distributed in East China, Northeast China, North China and South China, among which East China and Northeast China are the most concentrated regions. In 2021, the total production capacity in East China was 2.907 million t/a, accounting for 61% of the national total; the production capacity in Northeast China was 858 000 t/a, accounting for 18% of the total capacity; the production capacity in North China and South China was 619 000 t/a, 381 000 t/a, accounting for 13% and 8% of the total production capacity. South China was the main consumer of ABS resin. In recent years, many ABS manufacturers have begun to deploy in South China, and the proportion of this region is expected to continue to increase in the future.

From 2017 to 2021, the domestic ABS production showed an overall growth but the growth rate slowed down. Due to limited capacity growth, stable demand, and favorable factors such as improved profitability, the industry has maintained a trend of high production and high start-up. The five-year average start-up load was 96.1%, as shown in Figure 2. The domestic production in 2021 was 4.554 million tons, an increase of about 8.6% year-on-year. Due to the maintenance of Jilin Petrochemical, Liaotong Chemical and Gaoqiao Petrochemical and other equipment during the year, and the new production capacity put into operation in the second half of the year, resulting in a decrease in the start-up load in 2021 compared to 2020 2.76%, and the operating rate of the device was around 95.6% annually.

Figure 2 Comparison of China's ABS production/starting load from 2017 to 2021

Imports soared and fell later, export growth can be expected

Due to its own lack of production capacity and low supply of special grades, the domestic market needs a large number of ABS imports to supplement each year. From 2017 to 2021, the average annual import volume of ABS in China was about 1.923 million tons, and from 2018 to 2020, the average volume exceeded 2 million tons. In 2021, China imported 1 755 300 tons of ABS, a year-on-year decrease of 262 100 tons, and the import dependence dropped from 32.7% in 2020 to 28.2%. Import sources mainly came from Taiwan, South Korea and Malaysia, accounting for 41%, 30% and 11% of total imports respectively, as shown in Figure 3. Importing provinces and cities mainly included Guangdong, Zhejiang and Jiangsu, accounting for 51%, 17% and 9% of total imports respectively. The trade methods were mainly general trade and processing with imported materials, accounting for 53% and 38% of the total import respectively. Figure 4 shows the comparative statistics of ABS import and export from 2017 to 2021.

Figure 3 Statistics on the proportion of China's ABS imports in 2021

Figure 4 Comparative statistics of China's ABS import and export from 2017 to 2021

In terms of exports, China's ABS exports generally maintained a growth trend from 2017 to 2021, but the base was low compared to the million-ton import volume. The average annual export volume in the five years was only about 50 000 tons. From 2017 to 2021, the total export volume was 251 100 tons, of which the export volume in 2021 was 80 800 tons, an increase of 31 400 tons compared with 2020, a year-on-year increase of 63.6%.

Steady increase in demand, slowdown in growth rate

Supported by the increasing demand for light industries including home appliances and daily necessities, domestic ABS demand showed an increasing trend from 2017 to 2021, but the growth rate has slowed down. The apparent consumption has increased from 5.384 million tons in 2017 to 6.23 million tons in 2021, with a compound growth rate of 5.12%. The slowdown in demand growth was mainly due to the combination of multiple factors such as the rapid decline in demand in the downstream automotive industry, the slowdown in the growth rate of home appliances, and the emergence of price advantages of alternatives such as benzene modification and recycled ABS after 2018, resulting in a decrease in ABS consumption. .

China's ABS consumption was mainly concentrated in the fields of household appliances and office equipment. From 2017 to 2021, the downstream consumption structure of ABS in China did not change much, mainly in the fields of automobile industry, electronic appliances, appliances and building materials, as shown in Figure 5. In the past five years, consumer demand for electronic appliances and light industry has grown, and the consumption of ABS has steadily increased, accounting for more than 60%. Affected by the development direction of automobiles, electric vehicles and other industries and the increase in substitutes, the demand for ABS in transportation applianceshas showed a decline in varying degrees, from 12% in 2017 to the current 8%; with the development of saving trends such as paperless office, the demand for ABS for office equipment such as printers and copiers has also decreased, and the proportion of consumption in 2021was 9%.

Figure 5 China's ABS downstream consumption structure in 2021

From the perspective of consumption regions, China's ABS consumption areas were mainly concentrated in East China, South China and North China, as shown in Figure 6. Among them, the total consumption of ABS in East China and South China accounted for more than 80% of the total consumption, and the proportion of consumption remained at about 88% for three consecutive years from 2019 to 2021.

Figure 6 The geographical proportion of China's ABS consumption in 2021

Synchronized growth of supply and demand, tight supply will continue

From 2017 to 2021, the domestic ABS market was mostly in a state of tight supply, with an average annual supply and demand gap of about 1.87 million tons in five years, as shown in Figure 7. Affected by the pandemic, people's time at home has increased, and downstream electronic appliances, light industry and other industries that are closely related to people's livelihood have provided assistance for the steady growth of ABS demand with the rapid economic development. At the same time, due to insufficient new construction and capacity expansion of the domestic ABS industry before 2020, the domestic market supply could only be met by increasing the operating load of existing plants and increasing the import volume. At the end of 2021, the pace of industry expansion has accelerated, and the domestic supply capacity has improved. It is expected to replace imported sources or substitutes in the later period.

Figure 7 Comparison of changes in domestic ABS supply and demand           balance from 2017 to 2021

In 2021, both the domestic ABS supply and domestic market consumption were on the rise, with a supply-demand gap of 1.675 million tons, a year-on-year decrease of 293 000 tons. During the year, the increase in overhaul of enterprises, the reduction in import volume and the high operation of equipment load have reached the limit, which only increased the market supply by 78 300 tons. In 2021, the apparent consumption of ABS was 6.23 million tons, a year-on-year increase of 1.1%. In the home appliance industry, export growth has been hindered due to the weakening of overseas demand growth momentum and rising sea freight rates. In addition, the price of ABS during the year has been at a high level in the same period in the past five years. Substitute products have invaded the original application market by virtue of their price advantage. This was the main reason of slowdown in consumption growth in 2021. 

Profit-driven capacity expansion frenzy? Opportunities and challenges coexist in the future

The low cost of raw materials and relatively stable fundamentals in the past two years have supported the ABS industry to maintain considerable profits. The average theoretical profit of ABS in 2020 was RMB4 079/ton, and it reached RMB5 137/ton in 2021, a year-on-year increase of 25.94%; compared with the profit level of about RMB1 300/ton from 2017 to 2019, it can be said that it has improved by leaps and bounds. The favorable market environment and high industry profits have prompted many manufacturers to increase their investment in ABS projects, and some plans have been accelerated. The data shows that the total production capacity of ABS projects planned to be put into operation in China in 2022 was 3.31 million t/a, and the domestic production capacity may increase to 8.075 million t/a, an increase of 69.5% compared with 2021. Figure 8 shows the forecast of China's ABS supply and demand balance from 2022 to 2026. According to incomplete statistics, from 2022 to 2026, a total of 16 enterprises in China will have 5.785 million t/a ABS production capacity on the market. By then, the total domestic production capacity may reach 10.55 million t/a, with an average annual growth of 19.58%. It is expected that domestic ABS consumption will increase by 25.24% annually from 2022 to 2026, and will reach 7.95 million tons in 2026. The domestic market is expected to further boost total demand growth by expanding exports. The supply and demand balance gap in the domestic ABS market may be further narrowed, and it will gradually develop in the direction of tight supply and demand balance or even oversupply. The rapid expansion of domestic production capacity will lead to an overall decline in the operating rate of the industry, the market saturation of general materials will increase again, the homogenization of low-end products and the competition in the price market will become increasingly fierce, and manufacturers will face unprecedented opportunities and challenges. 

Figure 8 Forecast of China's ABS supply and demand balance from 2022 to 2026