The contradiction between supply and demand continues to deepen: how to find a breakthrough in the predicament of chemical enterprises

In the first half of 2025, China's chemical industry presents a difficult situation of "increasing production without increasing income. The industry faces three core challenges:

severe overcapacity (capacity utilization rate is only 71.9 per cent, below the national industrial average), continued weak demand (both internal and external pressure), and a sharp decline in profitability (profits in the chemical raw materials industry fell 4.7 per cent year-on-year).

From the perspective of financial performance, the profits of the whole industrial chain declined: the operating income of the oil and coal processing industry was 2221.14 billion yuan, down 11.2 percent from the same period last year, and the loss was 17.47 billion yuan, with a loss range expanding 67.7 percent from the same period last year; the operating income of the chemical raw materials and products manufacturing industry was 3,695.74 billion yuan, up 2.1 percent from the same period last year, but the total profit was 151.58 billion yuan, down 4.7 percent from the same period last year, the total profit was 8.49 billion billion yuan, down 12.9 year on year.

However, there is a clear structural differentiation in the overall downturn: new energy vehicles and photovoltaic industries have led to strong growth in demand for related chemicals, and the recovery of the textile industry in Southeast Asia has created opportunities for chemical fiber exports. This pattern of differentiation indicates that the industry is undergoing a profound transformation, the traditional chemical trade model is facing challenges, but the emerging field contains huge business opportunities.

Key business impact: traditional bulk chemicals trade space narrowed, price pressure is obvious, new energy-related chemicals, Southeast Asian textile exports show structural opportunities, enterprises need to focus on capacity restructuring, cash flow management and market segment opportunity identification.

Capacity utilization rate hits record low, structural surplus stands out

overcapacity has become the biggest bottleneck restricting the development of the industry. From April to June 2025, the capacity utilization rate of chemical raw materials and chemical products manufacturing industry was only 71.9 per cent, 2.1 percentage points lower than the national industrial average (74.0 per cent) and the lowest level in nearly five years. What is more serious is that the situation in some sub-areas is even worse:

PVC industry: capacity utilization fell below 70%, mainly due to the downturn in the real estate market, the demand for PVC for construction has shrunk significantly.

Ethylene glycol: capacity utilization of about 68%, coal-to-ethylene glycol project in large quantities, but downstream polyester demand growth is limited.

Propylene oxide: capacity utilization rate of about 69%, new capacity release concentrated, while demand in traditional applications is weak

from the comparison of supply and demand data, the problem of structural imbalance is more prominent:

ethylene: capacity growth of 13.2 vs consumption growth of 6.07, supply and demand gap of 7.13 percentage points

propylene: capacity growth rate of 12.3 vs consumption growth rate of 10.0, excess pressure appears

paraxylene (PX): Although not mentioned in the original text, industry data show that capacity growth also exceeds demand growth by about 5 percentage points

historical comparative analysis: Reviewing the supply-side reform of the chemical industry in 2015-2020, the capacity utilization rate gradually rebounded from 68% to 78%, and the current level of 71.9 indicates that the industry has entered a period of deep adjustment again. Compared with the lowest point of 69% during the 2008 financial crisis, the current situation is not at its worst, but considering that new capacity continues to be put in, capacity utilization may decline further in the next 6-12 months.

Market implication: Capacity utilization below 75% is usually regarded as an industry surplus warning line, while below 70% means that the industry has entered a reshuffle period. The current data shows that the chemical industry has entered a period of deep adjustment, and it is expected that 15-20% of inefficient production capacity will be under pressure in the next 12-18 months, which will create integration opportunities for efficient capacity enterprises.

The demand side is clearly divided, with emerging areas becoming bright spots.

The demand pattern is undergoing fundamental changes. The demand for traditional chemical products continues to shrink, while the demand for emerging applications is growing strongly.

Traditional demand shrinking trend is obvious:

gasoline: Production was 76.12 million tons, down 8.1 percent year-on-year, the third consecutive year of negative growth. Sales of new energy vehicles exceeded 8 million, penetration rate of more than 35%, a direct impact on refined oil consumption

diesel: production of 28.14 million tons, down 2.45 percent year-on-year, mainly due to slower growth in infrastructure investment and transport restructuring

kerosene: production of 95.76 million tons, down 7.23 percent year-on-year, slow recovery of international routes, aviation kerosene demand remains below pre-epidemic levels

strong growth in emerging demand:

ethylene: Production of 18.14 million tons, up 10.9 percent year-on-year, mainly driven by the new energy vehicle industry chain, battery separator, electrolyte solvent and other high-end applications demand for rapid growth.

Chemical fiber: output of 42.36 million tons, an increase of 4.9, of which high-performance fiber growth is more significant, aerospace, new energy and other fields of strong demand

caustic soda: production of 22.68 million tons, up 4.8 YoY, electrolytic aluminum, photovoltaic silicon and other industries demand growth is the main driver

sulfuric acid: production of 54.91 million tons, up 6.3 YoY, lithium iron phosphate batteries, titanium dioxide and other downstream demand growth driven.

in-depth analysis of market segments:

battery materials field: battery grade lithium carbonate, lithium hexafluorophosphate, electrolyte solvent and other products demand annual growth rate to maintain 25-40%

photovoltaic materials field: photovoltaic grade polysilicon, EVA film, POE film and other products driven by the growth of photovoltaic installed capacity, demand growth of 15-25%

high-performance materials: carbon fiber, aramid, PEEK and other special engineering plastics demand annual growth rate of 10-15%

trend interpretation: The energy transition is reshaping the chemical demand pattern, and this transition process is expected to last 5-8 years. The average annual demand growth rate of traditional petrochemical products will continue to be negative, while new energy and new materials related chemicals will maintain double-digit growth. This structural change provides a clear direction for the transformation and upgrading of chemical enterprises, and also provides an opportunity window for traders to re-layout.

Impact on chemical trade

export trade showed a clear trend of differentiation, traditional chemical products exports under pressure, and specific sub-sectors of the bright performance.

overall export data analysis:

chemical raw materials and products: export delivery value of 267.5 billion yuan, down 2.8 percent year-on-year, but from the monthly data, the decline is narrowing (June single month fell 2.1 percent year-on-year, a significant improvement from the 4.5 percent decline in the first quarter)

chemical fiber: exports 36.1 billion yuan, up 5.5 percent year-on-year, the first positive growth in nearly two years

structural changes in export markets:

southeast Asian market: it has become the main driving force for the export growth of chemical fiber products. The textile industry in Vietnam, Indonesia, Malaysia and other countries has developed rapidly, and the demand for polyester staple fiber and polyester chips has increased by 20-30%

european and American markets: affected by the uncertainty of trade policy, the export of traditional chemical products is facing greater pressure, and anti-dumping investigations and tariff measures are expected to further affect the export prospects

"Belt and Road" market: infrastructure construction drives demand for basic chemical products, but growth is relatively limited

trade strategy adjustment recommendations:

inventory structure optimization: reduce traditional bulk chemical inventories to the margin of safety, focusing on the pace of inventory removal and cash flow management

emerging market layout: increase investment in new energy materials trade, establish direct supply relations with battery plants and photovoltaic enterprises

regional market deep plowing: focus on the development of Southeast Asian textile supply chain, chemical fiber products export prospects are relatively optimistic

product structure upgrade: transition from low-end homogeneous products to high value-added specialty chemicals

The supply chain landscape is undergoing profound changes, upstream cost dividends are difficult to transmit, midstream competition is intensifying, and downstream bargaining power is differentiated.

upstream raw material cost analysis:

crude oil prices: the average price of Brent crude oil decreased by about 8-12% compared to the same period last year, providing cost support for the petrochemical industry chain

coal prices: thermal coal prices down 15-20%, coal chemical route cost advantage further revealed

natural gas prices: 10-15% year-on-year decline due to increased global supply

but the reason why cost dividends are difficult to translate into profits is that weak demand leads to product prices that often fall more than raw material costs, and corporate profit margins narrow.

In the short term of 6-12 months, the industry will continue to bear the pressure of adjustment, the capacity utilization rate is expected to fluctuate in the range of 70-75%, and some backward production capacity will be forced to withdraw from the market. In the medium term 1-3 years, supply-side structural reform will accelerate production capacity clearance, the proportion of demand for new energy-related chemicals will increase significantly, and industry consolidation and merger activities will become more frequent.

For production enterprises, the key is to speed up the adjustment of production capacity structure, transform to new materials and specialty chemicals, strengthen cost control and product structure optimization, and actively seek opportunities for upstream and downstream integration of the industrial chain. For traders, we should adjust the inventory structure, reduce the inventory of traditional products, develop new energy, Southeast Asia and other market segments, and strengthen risk control. For investors, focus on subdivision leaders with technical and cost advantages, lay out the new energy materials industry chain, and grasp the investment opportunities brought about by industry integration.

At present, the chemical industry is at the key node of transformation and upgrading, and the traditional growth model is no longer sustainable, but the structural transformation also breeds new development opportunities. Enterprises need to find a balance between short-term survival pressure and long-term development strategy, accurately identify and grasp structural opportunities, in order to turn crises into opportunities in this round of in-depth adjustment and achieve sustainable development.