Today, the market performance is stable, and the index has not risen or fallen too much. From the perspective of transaction volume, it has exceeded one trillion for the 9th consecutive day. The market sentiment is fierce.

       Today, BIPV, carbon trading and organic silicon are leading the rise. The first two of them are in "Rooftop Distributed Photovoltaics: The Next Stage of the Photovoltaic Industry Layout" and "Carbon Trading, Terms You Must Know in the Next Forty Years". After researching, so today's topic is: Silicone.

       We believe that the recovery of demand from emerging industries such as new energy, electronics and electrical appliances is a new growth point for organic silicon. In terms of supply, due to tight policies and limited capacity expansion, the supply and demand structure will remain tight in the short term , but in the long term. It can be seen that midstream companies with cost control advantages and downstream application companies with technological advantages in the high-growth track have investment value.

1

Unbalanced supply and demand drives up prices

The current round of silicone rise began in May, mainly due to the increase in material prices. In the first half of 2021, the average domestic silicone DMC market price rose from 22,000 yuan/ton at the beginning of the year to 30,500 yuan/ton in June. Above the 20,000 yuan mark.

       The rise in prices directly drives the increase in industry profits. At the same time, since the domestic silicone market price in 2018 was at a high point in recent years, domestic companies have expanded their production, and the supply has continued to increase, and the growth rate is around 10%. However, overseas Production capacity has not expanded in recent years, and domestic companies have benefited significantly during this round of price increases.

        The main reason for the price increase is the imbalance between supply and demand. On the demand side, in the past three years , the demand for new energy vehicles, photovoltaics, daily consumption, and medical consumption have directly driven the substantial increase in the demand for organic silicon. The overseas economy gradually recovered, and downstream demand picked up.

       On the supply side, the current state policy on industrial silicon production capacity is tight, and the downstream stockpile is active. The industry chain survey shows that the current monomer plant orders are scheduled to mid-July, and the inventory pressure of silicone DMC is still relatively small.

2

Industry chain

        As a kind of special polymer materials, silicone materials are listed in the State Council's "China High-tech Products List", "Strategic Emerging Industry Classification List" and other policy documents all year round, and are a key development project of "Made in China 2025".

       The main body of the industrial chain is mainly composed of "upstream industrial silicon production-midstream organic silicon monomer/intermediate production-downstream organic silicon finished product production".

       The upstream and downstream of the industrial chain have different logics. In specific terms, the advantage of upstream industrial silicon lies in resources, the midstream lies in the expansion of production capacity and cost reduction, and the downstream focuses on research and development. Let's look at it separately.

       In the upstream industrial silicon production cost, 80% comes from the cost of raw materials and electricity. Therefore, power resources and mineral resources constitute the core barriers to upstream competition.

After 2016, the industry's capacity expansion rate has dropped significantly. The average annual compound growth rate of production capacity from 2016 to 2020 is 0.72%, which is a significant drop from the 6.3% in 2012-2016.

The main reason is the tightening of policies . As major provinces of industrial silicon production, Xinjiang and Yunnan have successively introduced policies to restrict the increase of industrial silicon production capacity. In the future, industrial silicon production capacity will be mainly based on capacity replacement.

At the same time, since the cost of power generation in the production cost of industrial silicon is relatively high, the approval of self-provided coal-fired power plants has basically stopped nationwide. Therefore, the new industrial silicon production capacity in the future will be restricted by the two aspects of production capacity + cost, and the future production capacity will be large. The possibility of scale expansion is unlikely.

Globally, according to the data of Baichuan Yingfu, China has already undertaken most of the production capacity of developed countries in 2020. The total output of industrial silicon will reach 2.22 million tons, accounting for 67% of the total global output. If China expands its production on a large scale, it will inevitably cause Oversupply affects the overall profit of the industry.

As the largest downstream consumer market for industrial silicon, midstream organosilicon monomers/intermediates have a high degree of standardization, and the advantages of scale will be fully utilized. The core competitiveness comes from scale reduction of costs.

In addition, compared with outsourcing, manufacturers of self-owned raw materials can reduce the cost of raw materials by 20%-25% on average . Self-produced intermediates while extending downstream will be a general trend in the industry in the future. The average self-use ratio of intermediates in domestic monomer plants is 64%. Among them, Hubei Xingfa owns the highest proportion of 86.1%; Inner Mongolia Hengyecheng 79.2%; Hesheng Silicon Industry 76.7%.

There are many types of downstream organic silicon products and a wide range of applications. Demands in emerging fields are constantly emerging. Companies with technological and R&D advantages will take the lead in occupying the market.

In terms of specific industries, the most widely used industry is the construction industry, followed by electronics and electrical appliances. For example, high-performance silicone oil can be used in underground railway transformers to prevent explosion; silicone rubber can be used in high-layer building curtain wall glass and indoor wire and cable copper openings to achieve sealing and fire prevention; finishing agents (including silicone oil) can be used in textiles and sheep Sweaters improve the appearance and feel; hydrogen-containing silicone oil can be used in cosmetics and daily chemicals to improve the performance and grade of products.

Looking forward to the future, for domestic companies, China is the center of global silicone production. Domestic companies have now taken the initiative to take the initiative in large-scale traditional markets such as construction and textiles by virtue of their cost advantages, and come from new energy, photovoltaic power generation, electronic appliances, etc. The demand of the emerging environmental protection industry will increase significantly, driving the silicone to maintain a high degree of prosperity.

Reproduced in the MIN NEWS;