Gross Profit in PC Industry Plummeted

In 2018, affected by the cost and market conditions, the gross profit at China’s PC producers declined largely. By now, the average profit has dropped by 47% within the year.

Up to now, the highest and lowest profit levels occurred in February and July 2018, and they were RMB 10,106/mt and RMB 5,525/mt respectively. The monthly average profit decreased by 16% in April, which was the largest change in 2018 so far.

In recent years, benefiting from the lowered BPA prices in 2015 caused by the capacity expansion of phenolic ketone units, rapidly rising domestic demand, and policy support from the nation, the gross profit at PC producers surged and remained at highs for three and a half years. However, in 2018, the transfer of production cost met resistance in PC market, and the effective capacity of newly added units kept rising. Moreover, the growth rate of demand decelerated, dampening the PC market.

The price spread between PC and BPA narrowed notably, while that between BPA and phenol enlarged.

Since March 2018, the price spread between phenol and BPA has widened. The main reason was that the newly added PC units ran normally after being put into operation, pushing up the demand for BPA. Additionally, due to the commissioning of newly added PC units at Lihuayi Weiyuan Chemical, less BPA resources were supplied to the market. Thus, the supply gap in BPA market continued to increase.

The BPA prices also see declines in certain period of times, but the BPA market are undergoing changes in the demand structure. When the newly added BPA capacity is limited, the prices will inevitably go up. The gross profit at BPA producers is estimated above RMB 5,000/mt.

The current gross profit level at PC producers is the same as that in May 2017. In addition, the PC market continues to weaken, dragging down the profit level. According the calculation based on the year-to-date prices trend of PC and BPA, SCI estimates that the gross profit of PC producers can still remain above RMB 1,000/mt at the end of 2018, while the gross profit margin will drop significantly to 6%, which may affect the commissioning of following planned units.