By Zhang Cheng, Zhou Zhenyi, Zhang Songchen, China National Chemical Information Center

Domestic organic silicon market: leading companies are struggling amid the choppy market

Chinese organic silicon market was unprecedentedly volatile in 2022 in line with the turbulent political and economic environment globally. As a result, the average sales prices dropped sharply compared with the levels in 2021. In addition, a slowdown in domestic organic silicon demand growth restricted buying interest from downstream buyers, which caused the domestic sales and exports of organic silicon products to face unprecedented difficulties, so the prices were fluctuating widely. Therefore, Chinese organic silicon listed companies lost upward momentum in the revenue growth in 2022.

There were 12 organic silicon monomer producers in China at the end of 2022. Five listed companies of them unveiled their organic silicon performance. In terms of revenue, except for Hoshine Silicon Industry and Dongyue Silicon Materials which had started up units, the revenue of the other companies was lower than that in 2021 (see Figure 1).

Figure 1 Revenue of organic silicone producers in China, 2019-2022

Figure 2 shows the gross profit of Chinese organic silicon producers during 2019-2022. In 2022, Hoshine Silicon Industry New Material’s Phase II coal-electricity-silicon integration project with a capacity of 200 000 tons of siloxane and downstream deep processing project were completed and put into operation, which further underpinned its leading position of organic silicon monomer capacity globally. Hoshine Silicon Industry achieved organic silicon revenues of RMB13.026 billion, up by 6.41% year on year. The sales volume of key products such as 110 raw rubbers, 107 rubbers, mixed compound, cyclic siloxane, and fumed silica increased by 30.3%, 48.7%, 53.9%, 46.4%, and 41.3% year on year, respectively. While Hoshine Silicon Industry’s revenue grew, its profit was weighed down. In 2022, Hoshine Silicon Industry's gross profit of organic silicon was RMB4.259 billion, down by 37.7% year on year; the gross profit rate was 32.7%, down by 2.3% year on year.

Figure 2 Gross profit of organic silicone producers in China, 2019-2022

Dongyue Silicon Materials Co’s 300 000 t/a organic silicon monomer and 200 000 t/a downstream deep processing project were completed and put into operation in 2022. Therefore, the organic silicon capacity doubled to 600 000 t/a. In 2022, Dongyue Silicon Materials registered revenue of RMB6.734 billion, up by 55.4% year on year. The sales revenue of 110 raw rubber, 107 rubber, mixed compound, cyclic siloxane, and fumed silica increased by 36.3%, 65.2%, -17.7%, 179.4%, and 37.1% year on year, respectively. The gross profit of Dongyue Silicon Materials was RMB956 million, a year-on-year decrease of 40.1%; the gross profit rate was at 14.2%, down by 23.2% year on year.

Xin'an Co., Ltd has a capacity of 490 000 t/a of organic silicon monomers, and also has many kinds of silicon-based end-use products and special silane products. In 2022, the operating revenue was RMB7.431 billion, down by 2.9% year on year; the gross profit was RMB1.812 billion, a year-on-year decrease of 35.2%; the gross profit rate was 24.7%, a year-on-year decrease of 12.3%. The gross profit rate of silicon-based basic products decreased by 21.3%, while the gross profit rate of silicon-based end-use products and special silane products increased by 0.5%.

Xingfa Group has a designed capacity of 360 000 t/a of organic silicon monomers, as well as downstream products such as 150 000 t/a of silicone rubber and 51 000 t/a of silicone oil. In 2022, the operating revenue was at RMB4.133 billion, down by 19.1% year on year; the gross profit was at RMB723 million, a year-on-year decrease of 56.9%; the gross profit rate was 17.5%, down by 16.9% year on year.

Sanyou Silicon Industry has a designed capacity of 360 000 t/a of organic silicon monomers. In 2022, the operating revenue was RMB2.691 billion, a year-on-year decrease of 20.1%; the gross profit was RMB204 million, down by 75.0% year on year; the gross profit rate was 7.6%, a year-on-year decrease of 16.6%.

As for profitability, resource-based upstream producers in the chemical industry chain reported good profits in 2022. Midstream producers, including organic silicon producers,were all in the red because of high energy prices, accelerated industry expansion, and sluggish demand. Among the above-mentioned producers, except for a slight increase in the revenue of Xinan Group’s silicon-based end-use products and special silane products, the gross profit rate of the organic silicon monomer industry decreased, and the average gross profit rate of the five listed companies fell by 19.1% year on year.

The sharp price fluctuations of organic silicon industry chain products in the past two years, especially from August to October 2021, were also affected by the prices of metal silicon. This was mainly because a part of capacities were idled in key production areas of metal silicon such as Xinjiang, Yunnan, and Sichuan on the back of the dual control system of total energy consumption and energy intensity. 

However, in the longer term, the reason is that the prices increased sharply in the early stage and will fall back on heels of the release of new capacities.  

In the future, polycrystalline silicon may become the key application field of metallic silicon, and hence there will be less influence of organic silicon on metallic silicon prices. However, it is inevitable in the short term that the prices of metal silicon will fluctuate in seasons, and the pricing power of organic silicon producers will be weakening. Therefore, it is difficult for organic silicon monomers to regain the peak profits of the past few years. Figure 3 shows the spot prices of organic silicon DMC from 2013 to 2023.

Figure 3 Spot prices of organic silicon DMC, 2014-2023

Market outlook: huge demand potential, clear direction for the development of high-end products, and long-term bullishness

The organic silicon market has a wide range of downstream applications and a big market size, although the market reported weak performance in 2022. Therefore, the market outlook is bullish in the long term and demand will keep growing fast. Especially in China’s market, the demand for organic silicon will come back by about 10% amid the expectations of economic recovery.

Firstly, in 2023, the investments in real estate will stabilize from low levels, while the investments in manufacturing and infrastructure will still play as a bottom base of the economy. The development of prefabricated buildings will drive the second round of growth for organic silicon products, led by silicone rubber.

Secondly, four major sectors - electronic information represented by 5G and semiconductors, electric power represented by construction of ultra-high voltage and ultra-high voltage power grid as well as photovoltaics, transportation represented by new energy vehicles, rail transit, and aerospace, and healthcare represented by human implant materials, have huge demand potential, providing new growth points for organic silicon demand.

In addition to the huge potential for demand growth, there is a huge potential for the development of high-end organic silicon products in China. In 2022, the average price of downstream products in China was only at RMB43 000/ton, much lower than the global average level of RMB68 000/ton. 

The gap was bigger in import and export trade. In 2022, the total import volume of primary-grade polysiloxane in China was 96 000 tons, down by 28.3% year on year; the total export volume was 453 000 tons, up by 20.6% year on year, leaving a wider gap between import and export (see Figure 4). However, the average export price of organic silicon in China was much lower than the average import price, because low value-added products and basic raw materials are mainly for exporting while high value-added products depend on importing.

Figure 4 Import and export data of primary polysiloxane in China, 2020-2022

Producers, except for Hoshine Silicon Industry which is focused on cost competition, announced plans to develop downward on the back of high growth rate and high profits of downstream markets. 

In 2022, the domestic leading companies added downstream deep processing projects such as Xin’an Maitu’s 52 000 t/a high-performance organic silicon new material project and Hangzhou Chongyao’s 24 000 t/a high-performance special modified silicone oil and secondary processed products project. In the future, producers will accelerate the layout and development of special monomers; develop organic silicon end-use products and high-end products; focus on fields such as power communication, rail transit and automobiles, healthcare, consumer electronics, and new energy materials, so as to create champions in 4-5 segmented application fields.

Dongyue Silicon Materials will carry out key technology research through a 200 000 t/a deep processing project for downstream organic silicon products, such as high-performance silicone rubber, silicone oil, silicone resin, organic silicon additives, and organic silicon modified materials, to realize industrialization as soon as possible, enrich the company's product system, develop new high-end products, and expand new market space.

Xingfa Group is building a 80 000 t/a special silicone rubber unit, a 2 200 t/a silicone microcapsule unit, a 5 000 m3/a aerogel unit and other silicone-based new material projects, thereby broadening the distribution of downstream special silicone products, and seizing segmented markets.

Sanyou Silicon Industry will expand its downstream fields of organic silicon; actively develop cutting-edge technologies in industries such as foam adhesive, photovoltaic adhesive, and organic silicon leather; optimize properties of products such as organic silicon release agents, defoamers, and sealing adhesives. The construction of downstream projects such as 13 900 t/a high-end silicone oil is making big progress.

Guided by the government’s favorable policies, China’s organic silicon industry will focus more on developing special monomers and downstream special products, as well as exploring high value-added application fields, so the organic silicon market outlook is bullish. Development of new technologies and products will be the key direction, which will also be the core factors for competition for organic silicon producers.

Organic silicon producers are still facing big challenges, but it is also good time to improve themselves. In terms of research and development, Chinese leading companies are still lagging behind global peers by about ten years. In such a relatively difficult market environment, it is more important to reform and innovate aggressively so as to complete the replacement by local high-end products. At the same time, producers should make efforts to catch up with world-class technologies and lay a solid foundation for future development of high-end application. In terms of production, it is necessary to improve operation by selecting the source of raw materials and upgrading technology. As for sales, it is necessary to continuously strengthen quality management, enhance brand image, and collaborate on research and development as well as production in order to make rapid response, thereby providing customized solutions for different industries and customers, and increasing added value of products.