A Combination of Capacity, Cost and Demand Affects Domestic PC Prices
Click:8    DateTime:Jul.11,2022

Zhou Xue, Sublime China Information (SCI)

China's polycarbonate (PC) capacities have been continuously expanded in recent three years, weighing on the supply-demand pressure. The resultant mismatch of supply and demand from 2020 has changed gross profits significantly in the PC industry. In 2022, the volatility of domestic PC prices was restricted by a decline in the amplitude of feedstock prices and slower growth in demand for PC. There were more concerns over the supply and demand conflict as PC capacities kept increasing in May, keeping more players at bay.

Despite a double-digit growth rate in domestic PC capacities over the past three years, the growth of export and domestic demand has not kept up with, leaving the supply and demand to be more unbalanced. According to the Guide Catalogue for Industrial Restructuring announced by the National Development and Reform Commission in 2019, the Department included the non-phosgene PC production units with a capacity of 60 000 t/a and above to the catalogue of the encouraged projects. The units were also included in the Catalogue of Industries of Encouraging Foreign Investment (2020 Edition) (Exposure Draft), which began in May 2022. While the capacities are increasing, more and more domestic PC plants have been integrated. The integration rate will continue to increase in 2022, and the influence of various market factors on the industry is changing.

Continuous capacity expansion lowers proactive profitability in the PC industry

China's PC industry is at the end stage of the capacity expansion period now. With the start-up of Pingmei Shenma Group’s PC plant in May, the domestic capacity has totaled 2.82 million t/a, up by 21.0% year on year, as shown in Figure 1. Wanhua Chemical’s Phase III and Zhejiang Petrochemical’s Phase II are under construction. Hainan Huasheng’s and Pingmei Shenma’s Phase II projects will be soon be ready for construction. In addition, there will be construction plans for Zhangzhou Qimei Petrochemical and Hengli petrochemical during the 14th Five-Year Plan period (from 2021 to 2025).

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Figure 1 China's PC capacity and growth trend from 2020 to 2022


Domestic PC capacity continues to expand, outpacing demand and hence highlighting the imbalance between supply and demand in the PC industry. Different from previous profit generating way, the current profits in the PC industry are mainly from lower feedstock prices, reflecting that the proactive profitability is declining, as shown in Figure 2.

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Figure 2 Gross profits of China's PC market from 2020 to 2022


The feedstock cost underpins the floor prices for PC 

According to the price trend of major feedstock bisphenol A during 2021 - May 2022 (Table 1), the change range and amplitude of quarterly average price have been at the lowest level in recent two years. The stable feedstock prices lend smaller room for a pickup in PC production cost compared with 2021, but the cost underpins the floor prices for PC. 

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According to the price trend of other raw materials (Table 2), the capacity ramp-up and the mismatch between supply and demand have led to significant fluctuations in the prices, thereby changing the main composition of PC production costs.

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According to the cost of main raw materials of PC from 2021 to 2022 (Figure 3), the price gap among raw materials has significantly narrowed since the end of February 2022.

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Figure 3 Costs of main raw materials from 2021 to April 2022

Slow demand growth hits market confidence

PC is at the terminal of phenol/acetone industrial chain, which is directly or indirectly applied in the fields of electronic and electrical appliances, automobiles, plates, packaging, consumer staples, and medical treatment. Therefore, any change of PC consumption from the end-user market is directly reflected to the PC market rapidly, and any change of consumption trend at home and abroad closely affects the PC market sentiment and leads to market volatility. 

Domestic end-user markets are under production and sales pressure, hindering the recovery of consumer confidence

China's total retail sales volume of social consumer goods in April 2022 decreased by 11.1% year on year and the volume from January to April lost 0.2% year on year, as shown in Table 3. Consumer confidence is yet to be improved.

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As for domestic production, from January to April 2022, multiple industries related to PC in China reported a decline in output, so their needs for feedstock decreased, which slowed transactions, as shown in Table 4.

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In terms of exporting, although China's total exports increased by 10.3% from January to April 2022, the export volume of downstream products, such as electric irons, juicer exactors, earphones, and low-voltage switches, marked a year-on-year decline, while only the export volume of plates enjoyed a year-on-year increase, as shown in Table 5.

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     On April 25, the general office of the State Council issued the Opinions on Further Releasing Consumption Potential and Promoting Sustainable Recovery of Consumption, which specified 20 key measures regarding five aspects to promote consumption systematically and comprehensively in accordance with the requirements of combining goal orientation and problem orientation, and taking consideration into short-term support and medium- and long-term development. It also put forward that consumption is the key link and important engine to the domestic cycle, and is a lasting driving force for the economy. The improvement process of end-user demand for PC is highly concerned.

Players adopt wait-and-see stance amid the dual constraints of cost and demand, as well as the integration of the industrial chain 

     The capacities in some provinces and cities of East China are yet to be further released. With new capacities coming on stream in May, the integration rate along the PC industrial chain has increased rapidly. The rate of downstream units serving bisphenol A has reached 46.5%, up by 0.1% from that at the end of 2021 and up by 10.9% from that at the end of 2020. The integration trend as well as the dual constraints of cost and demand are expected to hit the market further and thus keep players on the sidelines.