IHS: Silicones market at risk from expansions in China

ERJ staff report (PR)

Houston, Texas – Silicone capacity expansions in China are generating significant global oversupply that is impacting profitability and growth for producers worldwide, an IHS Chemical report has warned.

With nearly 40 percent of global silicone-production capacity, China is now the largest producer of silicones in the world. Capacity there includes several world-scale plants built as joint ventures with foreign companies such as Dow Corning and Wacker Chemie.

China is expected to build additional capacity, equivalent to nearly 20 percent of the 2012 global demand through 2016, according to Aida Jebens, principal author of the IHS Chemical report and a speciality chemical analyst at IHS.

“That excess Chinese capacity threatens to destabilise the global silicones market,” said Jebens. “Less profitable producers are at risk of rationalisation and under-utilisation, and excess capacity is going to cause prices to fall.”

According to IHS, further capacity additions are scheduled to come on stream in China through 2016. If all of these projects come on stream, China's share of the global capacity will rise to 50 percent by 2016. In contrast, no significant capacity additions occurred in the other regions in the last five years and none is expected through 2016.

“Despite this anticipated slowing in domestic demand for China, the country’s impact on the global silicones market cannot be minimised,” Jebens concluded. “China is the most dominant player in the market, and any major shifts in either Chinese demand or production capacity will have significant implications for the global silicones market.

“The sheer volume of excess capacity being added to the market by China is already impacting the profitability and performance of global producers, and more capacity has yet to be added.”