PC: Capacity Growth & Declined Profitability
In recent years, China’s PC capacity has been on a rise, and the expectation of supply-demand pressure has always existed. The PC industrial gross profit has experienced wide-range fluctuations since 2020 due to the mismatch of supply and demand. In 2022, the vibration of feedstock price slackened, and demand improvement was limited. With the PC capacity increasing further, market sentiments weakened, and market players operated cautiously.
With the PC product available at China Pingmei Shenma Group in May, China’s PC capacity has reached 2,820kt/a, up 21.0% from 2021. Currently, there are some units under construction, including the PC project of Wanhua Chemical and the phase II project of Zhejiang Petroleum & Chemical. The phase II projects at Hainan Huasheng New Material and China Pingmei Shenma Group have been put on the agenda gradually. In addition, there are some relatively clear schedules about newly added PC units during the 14th Five-Year Plan, such as the unit at Zhangzhou CHIMEI Chemical.
China’s PC capacity kept expanding, but its demand growth lagged behind, resulting in an obvious supply-demand mismatch. Currently, the PC industrial gross profit is significantly different from the previous high level. In recent years, the recovery of the PC industrial gross profit has mainly benefited from the drop in feedstock prices, while the active profitability of the industry has been declining.
Table 1 2021-2022 East China BPA Market Prices
As for the major feedstock BPA, its quarterly average price has seen narrower change rates and amplitudes since H2, 2021. Entering 2022, BPA prices were largely stable, so the cost support to PC weakened notably from 2021, but BPA prices fluctuations still influenced the bottom of PC prices.
Table 2 PC Feedstock Quarterly Average Prices
For other feedstock, capacity growth and supply-demand imbalance also led to obvious price fluctuations, and then affected the production cost of PC.
As showed in the above chart, the cost difference of PC produced by different technologies narrowed greatly from February 2022. On the one hand, due to its sharp capacity expansion, the price of DMC kept sliding in 2022 and fell below RMB 5,000/mt, a low level in recent two years. On the other hand, the prices of liquid chlorine and liquid caustic soda had limited declines in 2022 on the mismatch of supply and demand. From January to May, the prices dropped to a low level temporarily, but the quarterly average price was still at a relatively high level. In 2022, the production cost of PC fluctuated in the range of RMB 16,900-21,000/mt. Given the processing and operation cost, the industrial profits were thin.
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