2024 ABS Capacity Expansion Slower Than Expected
Under the background of reducing oil and increasing chemical production and driven by the value chain, ABS capacity expanded significantly, which dragged down China’s dependence degree on imports. The import dependence degree dropped from 35% in 2018 to 16% in 2023. Due to the decline in industry prosperity, rising competition pressure among enterprises, and increasing losses, capacity growth may halt, albeit the expansion scale remains significant.
According to SCI, 3,270kt/a of new capacity will be added by the end of 2024, but the growth rate may slow down. First, China’s domestic supply and demand structure is gradually changing to a structural oversupply, and the internal competition pressure is upgraded. On the other hand, because of technical barriers, shrinking profitability, and constraints such as the return cycle of enterprise construction, the pressure of expansion gradually emerges, hindering the commissioning of some projects.
The supply-demand imbalance, along with fast capacity expansion, hampered industry prosperity. The energy market is rather high, and the upstream markets have already gone through their capacity expansion peak. The overall cost side supports the ABS market, but industry production losses occurred as a result of the narrowing spread between ABS and feedstock costs, which slowed the rate of new capacity construction.
It is projected that 89% of the proposed additional capacity in 2024 will be put into service during the year. In Q1, the newly added capacity was 450kt/a, which was lower than projected (965kt/a). The average theoretical gross profit for ABS in the first quarter was RMB -1,143/mt. Under the trend of loss expansion, the industry operating rate has reached its lowest point in recent years, with the average operating rate in the first quarter approaching 67%. Although the home appliances industry is scheduled to enter the demand peak season in the second quarter, and demand has room to increase, cost transmission is stalled, and the new project is still likely to be delayed.
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