For the past three years, silicones have been repeatedly labeled as having "overcapacity." However, data from 2026 presents a different picture. According to monitoring by the Maihuasu Research Institute, the average market price of domestic DMC (Dimethylcyclosiloxane) in the first three quarters was CNY 14,162 per ton, a year-on-year increase of 15.7%. Data from the General Administration of Customs shows that during the same period, exports of polysiloxanes reached 437,100 tons (437,058.55 tons), a year-on-year increase of 4.04%, with prices and export volumes rising simultaneously.
This set of figures does not point to a sudden surge in demand, but rather to simultaneous shifts in supply, costs, and demand structure: on one hand, gaps left by overseas capacity exits; on the other, active load reduction in domestic monomer production; and on the third, a structural shift in exports from "selling raw materials" to "selling intermediates and deep-processed products."
01、Operating Rate at 60%: Why Are Prices Still Rising?
As of the end of June, domestic DMC capacity was approximately 3.44 million tons. According to public statements made by Hoshine Silicon Industry on September 16, the overall operating rate of domestic organic silicon monomer units had remained at a reasonable low level of around 60% as of that time. A 60% operating rate seems contradictory to the term "scarce commodity": 40% of capacity is still "idle."
There are three concurrent reasons why prices continue to rise.
The first is the exit of overseas supply. Dow's basic siloxane unit in Barry, UK, has announced its closure, involving a capacity of 145,000 tons. According to statistics from the National Alliance for Green Development Strategy of the Silicon Industry (SAGSI), this accounts for approximately 30.5% of European polysiloxane capacity. The shutdown process began in mid-2026 and is expected to complete the main cessation of production by the end of 2027. As the shutdown progresses, orders are shifting to China, representing a marginal increment in external demand.
The second is the active load reduction by domestic monomer enterprises. After prices long hovered near cash costs, leading companies chose maintenance and production cuts to restore profits, thereby actively compressing supply elasticity.
The third is the rise in cost bases. Increases in raw material prices such as industrial silicon and methanol have raised the industry's overall cost curve, pushing up the price center. The combination of these three factors results in the seemingly counterintuitive scenario of "low operating rates, high prices."
It is also crucial to understand China's weight in this industry. In its semi-annual report, Dongyue Silicone Materials cited industry data indicating that China's DMC capacity accounts for approximately 80% of the global total. This share means that China's operating rate determines the global marginal supply. A 60% domestic operating rate actually corresponds to tightness globally, rather than overcapacity domestically. In other words, the label of "overcapacity" no longer holds true from a global perspective.
However, the full picture must be acknowledged. A 60% operating rate itself indicates that capacity has not been cleared out. This round of price increases is the result of a phased rebalancing of supply and demand. Once prices return to levels capable of covering the cash costs of all capacity, the resumption of idle capacity will quickly erase the gap. This is a key variable in judging price sustainability and a prerequisite that cannot be ignored when analyzing profit differentiation later.
02、Price Increases Do Not Equal Universal Profitability: Differentiation in Income Statements Is More Worth Watching Than Price Curves
First, let's look at Dongyue Silicone Materials. In the first three quarters, operating revenue was CNY 3.971 billion, a year-on-year increase of 31.21%; net profit attributable to parent company shareholders was CNY 557 million. Here, a base effect issue must be explained: net profit attributable to parent company shareholders in the same period last year was only CNY 2.8567 million, due to a fire accident in Q3 2025 which resulted in confirmed losses of CNY 39.3374 million, significantly depressing the base. Therefore, the year-on-year growth rate lacks comparability. Quarter-on-quarter trends are more illustrative: net profit attributable to parent company shareholders in the first half was CNY 429 million, a year-on-year increase of 916.22%. Back-calculating suggests Q3 standalone profit was approximately CNY 128 million, lower than Q2's CNY 235 million. While prices rose, quarterly profits fell, a result of combined effects from costs and maintenance schedules.
Next, consider Hoshine Silicon Industry. In the first three quarters, operating revenue was CNY 14.717 billion, a year-on-year decrease of 3.21%; net profit attributable to parent company shareholders was CNY 434 million, compared to a loss of CNY 321 million in the same period last year, achieving a turnaround from loss to profit. The trajectory of non-recurring net profit improving quarter by quarter is clear: a loss of CNY 49.1421 million in Q1, a profit of CNY 18.9195 million in Q2, and a profit of CNY 79.2936 million in Q3, a quarter-on-quarter increase of 319.11%. Gross margin was 16.35%, an increase of 8.16 percentage points year-on-year. Operating cash flow was CNY 3.790 billion, a year-on-year increase of 1.68%; inventory was CNY 5.684 billion, down approximately 20% from CNY 7.109 billion at the beginning of the year. The simultaneous occurrence of declining revenue, rising profits, and falling inventory is the most direct evidence of the repair in the price-cost scissors.
The third company is Xin'an Shares. In the first three quarters, operating revenue was CNY 12.359 billion, a year-on-year increase of 5.64%; net profit attributable to parent company shareholders was CNY 188 million, a year-on-year increase of 163.70%; non-recurring net profit was CNY 140 million, compared to a loss in the same period last year. However, breaking it down by quarter, net profit attributable to parent company shareholders in Q3 was a loss of CNY 65.9888 million, turning from profit to loss; gross margin dropped from 15.38% in the same period last year to 10.06%, a decline of 5.32 percentage points. Along the same price curve, three companies exhibited three different patterns.
Where does this differentiation come from? Looking at financial statement structures, product mix, degree of integration, energy costs, and maintenance schedules determine who can capture price increases in their income statements. Dongyue Silicone Materials has a high proportion of deep-processed products, with lagging price transmission; Hoshine Silicon Industry has a high self-sufficiency rate in industrial silicon and advantages in electricity prices at its Xinjiang base, making its cost side more resilient; Xin'an Shares' business spans both silicones and glyphosate, with quarterly performance dragged down by the other business line. Price is an industry variable, while profit is a company variable; the two cannot substitute for each other.
Therefore, equating DMC price increases directly with universal profitability improvement would misinterpret the essence of this cycle. The real focus is the order of recovery: after the price center rises, companies with high integration and high proportions of deep-processed products recover first, while those focused solely on monomer production or relying on purchased industrial silicon remain hovering near the break-even line. This order reveals how far supply contraction has progressed better than the price curve itself.
03、The Change in Demand Structure Hidden Within the 4.04% Export Growth
Export destinations confirm the structural changes. In the first three quarters, exports to South Korea were 75,000 tons, India 70,200 tons, and Vietnam 23,600 tons, together accounting for 38.62% of total exports. Northeast Asia, South Asia, and Southeast Asia comprise nearly 40%, corresponding to local capacity layouts in electronics manufacturing, photovoltaic modules, and architectural sealants. Chinese silicone exports increasingly resemble following manufacturing capacity abroad.
Changes in downstream consumption structure are even more critical. According to estimates by Central China Securities, among domestic silicone consumption, electronics account for 21%, power and new energy for 19%, and construction for 18%. The decline in construction's share and the rise in electronics and new energy shares are the core evidence of silicones migrating from the "real estate chain" to the "manufacturing chain." This explains why silicone demand did not collapse alongside ongoing adjustments in real estate investment—the incremental growth switched tracks.
The long-term slope of demand also supports this judgment. From 2014 to 2024, domestic apparent demand for silicone intermediates increased from 772,000 tons to 2.0605 million tons. Calculated based on endpoints, the compound annual growth rate was approximately 10.3%. Over ten years, demand grew 2.67 times, maintaining double-digit annual growth, while capacity expansion was faster—this is the origin of the "overcapacity" label. Now that prices can rise, it is precisely because supply-side expansion stopped first, while the demand-side slope remains.
Another point worth noting. Domestic demand grows at an average annual rate of over 10%, while export growth is only 4.04%. This means the primary support for this round of price increases comes from domestic demand upgrading and overseas supply gaps; exports are not the driver. The "scarce commodity" mentioned in the title derives its scarcity from supply contraction combined with internal demand shifting; exports are merely one outcome, not the cause.
Finally, the gap remains evident. Industry data shows that in September, the average export price of polysiloxanes was USD 2,801.61/ton, while the average import price was USD 10,149.95/ton. The average export price is only 27.6% of the average import price, less than 30%; conversely, the average import price is 3.6 times the average export price. The USD 2,801.61/ton export price corresponds to basic polymers, while the USD 10,149.95/ton import price corresponds to high-end silicone rubber, electronic-grade silicone oil, and specialty silanes. Narrowing this 3.6x price gap relies on advancing the domestic substitution of deep-processing stages, not continuing to expand monomer capacity. This is the main theme for the next phase and the aspect of the 4.04% figure most worth tracking.
04、Conclusion
Connecting the four sets of figures: average price up 15.7%, exports up 4.04%, operating rate at 60%, capacity at 3.44 million tons. The direct reason for price increases is not a demand explosion, but a phased gap formed by the exit of 145,000 tons of overseas capacity combined with active domestic load reduction. Profitability improvements were realized first in integrated companies like Hoshine Silicon Industry and Dongyue Silicone Materials, while Xin'an Shares' Q3 loss reminds us that differentiation persists. Within the 4.04% export growth, volume contribution is limited; structural changes are more worth tracking.
Silicones transitioning from "overcapacity" to "scarce commodity" is essentially a repricing event driven by simultaneous supply contraction and demand upgrading. This process will not proceed in a straight line; a 60% operating rate means capacity elasticity can return at any time, which is exactly why continuous data calibration is needed to judge the situation.