Transferred from "Hejun Shenzhen Industrial Research Network"

Since 2023, the cost pressure on the chemical industry has eased, the price center of chemical products has declined, and the overall revenue of the chemical industry has decreased year-on-year. However, the terminal demand performance varies, leading to obvious profit differentiation in segmented chemical industries. Specifically:

(1) Refining: In 2023, the crude oil price operates stably and the price center declines, which is conducive to the profit restoration of refineries. In the future, the new production capacity of China's refining projects will be limited, but the growth rate of refined oil demand may slow down. "Reducing oil and increasing chemicals" and "adjusting the industrial structure" are still the main themes of the refining industry.

(3) Fertilizer: In 2023, the price centers of nitrogen fertilizer, phosphate fertilizer, and potassium fertilizer products have shifted downward. In 2024, there will be more new supply of urea products, and the supply of urea products will be loose. Chinese potassium fertilizer enterprises have a high degree of concentration and low potassium ore reserves. In the future, it will be difficult to expand production. However, the demand gap for potassium fertilizer is large, and imports may continue to increase.

(4) Synthetic fiber: In 2023, the terminal demand for chemical fibers has improved, and overall profits have been restored to some extent. Among them, the capacity expansion of polyester filament and spandex industries is obvious. In 2024, the overall oversupply market situation in the industry still exists. The viscose staple fiber industry is affected by profit losses in recent years, and the industry's willingness to expand production is very low. In 2024, the profitability of the industry will mainly depend on demand conditions.

(5) Polyolefin: In 2023, the production capacity of polyolefins still shows an expansion trend. The supply pattern of general products in China's polyolefin industry is weak. In 2024, China's polyolefin is still in a capacity expansion cycle, further limiting product prices and operating rates, and the profit space for enterprises is limited.

(6) Rubber additives: In 2023, China's tire production increased significantly year-on-year, driving the total output of rubber additives to increase. However, product prices and sales revenue slightly decreased compared to the previous year. In the future, the industry concentration is expected to increase.

I. Overall industry operation

In 2023, the prices of crude oil and coal both fluctuated and declined, easing the cost pressure on the chemical industry. The price center of chemical products declined, and the overall revenue of the chemical industry decreased year-on-year. Due to the different performances of downstream industries of the chemical industry such as real estate construction, automobile and home appliance manufacturing, and textile and clothing, the demand pull for segmented industries varies, resulting in obvious profit differentiation in segmented chemical industries.

On the cost side, in 2023, the prices of crude oil and coal both fluctuated and declined, easing the cost pressure on the chemical industry. However, the current prices are still at a medium to high level, and the cost pressure on chemical enterprises still exists. Specifically, in the first half of 2023, the strong inflation data in the United States intensified the expectation of interest rate hikes in the United States, putting certain pressure on oil prices. In the second half of 2023, affected by factors such as the outbreak of the conflict between Palestine and Israel and the production cut by OPEC+, crude oil prices rebounded slightly. Since 2023, domestic coal production capacity has been continuously released. At the same time, combined with a significant year-on-year increase in coal imports, the tight balance of coal supply and demand has been eased, and coal prices have fallen.

On the demand side, the downstream of the chemical industry mainly includes real estate construction, automobile and home appliance manufacturing, textile and clothing, and agriculture. In terms of real estate, in 2023, China's cumulative housing construction area decreased by 7.20% year-on-year, which is at a relatively low level in the past 10 years. The downturn in the real estate industry has led to a weakening demand for some salt chemical and chemical fiber-related products. In terms of automobiles, in 2023, China's cumulative automobile production increased by 9.30% year-on-year, and the growth rate is at a medium level in the past 10 years. The rapid growth of automobile production still provides good support for the demand for polyolefins and new chemical materials. In terms of home appliances, in 2023, China's cumulative sales volume of major home appliances decreased by 8.61% year-on-year. The growth rate turned negative from positive and is at a relatively low level in the past 10 years. The demand for chemical products such as refrigerants, MDI, plastics, and basic chemicals has weakened. In terms of textile and clothing, in 2023, China's cumulative retail sales of textile and clothing increased by 12.90% year-on-year, a significant rebound compared to 2022. The recovery of the prosperity of the textile and clothing industry is conducive to the recovery of the demand for chemical products such as chemical fibers in China. Overall, the downstream of the chemical industry has performed differently since 2023. In the first half of 2023, domestic and foreign economic recovery fell short of expectations, the downstream demand of the chemical industry was sluggish, and the industry prosperity fluctuated and declined. Since July 2023, China has introduced a series of economic stimulus policies, and downstream demand has recovered weakly.

In terms of business performance, in 2023, except for the chemical fiber manufacturing industry, the revenue of the chemical industry decreased year-on-year, and profits varied year-on-year. According to the statistical data of China's National Bureau of Statistics on industrial enterprises above designated size nationwide, in 2023, the petroleum, coal and other fuel processing industries achieved operating income of 6,074.47 billion yuan, a year-on-year decrease of 1.00%; and achieved a total profit of 44.95 billion yuan, a year-on-year increase of 26.90%. During the same period, the chemical raw material and chemical product manufacturing industries achieved operating income of 8,792.58 billion yuan, a year-on-year decrease of 3.50%; and achieved a total profit of 469.42 billion yuan, a year-on-year decrease of 34.10%. During the same period, the chemical fiber manufacturing industry achieved operating income of 1,097.53 billion yuan, a year-on-year increase of 6.80%; and achieved a total profit of 27.07 billion yuan, a year-on-year increase of 43.80%.

In terms of investment, under the background of the "dual carbon" policy and the high-quality development of the chemical industry, the investment growth rate of some segmented industries has slowed down. Due to the concentrated commissioning of a number of large-scale refining-chemical integration projects in China in 2021, the speed of new production capacity put into operation has slowed down since 2022. In 2023, the completed investment in fixed assets of the petroleum, coal and other fuel processing industries decreased by 18.90% year-on-year. In 2022, the industry prosperity of the chemical fiber and manufacturing industries was very low. In 2023, the industry investment was relatively cautious, and the completed investment in fixed assets decreased by 9.80% year-on-year. Driven by consumption upgrading and domestic substitution, the market's demand for high-quality new chemical materials is continuously increasing. The completed investment in fixed assets of the chemical raw materials and chemical product manufacturing industries still maintains stable growth, increasing by 13.40% year-on-year in 2023.

II. Operation of segmented industries

There are many segmented industries in the chemical industry, and there are differences in industry prosperity among different sub-industries. This report focuses on analyzing segmented industries with concentrated bond issuers, such as refining, salt chemical industry, fertilizer, chemical fiber, fine and specialty chemicals.

In recent years, China's refining capacity and crude oil processing volume have fluctuated and increased, but China's primary crude oil processing capacity is overall surplus. At the same time, the dependence on crude oil imports is relatively high. In 2023, the crude oil price operates relatively stably and the center declines year-on-year, which is conducive to the profit restoration of refineries. In the future, the new production capacity of China's refining projects will be limited, but the growth rate of refined oil demand may slow down. "Reducing oil and increasing chemicals" and "adjusting the industrial structure" are still the main themes of the refining industry.

The refining industry chain uses crude oil and fuel oil as raw materials to obtain different types of refined oil products through distillation under different conditions. At the same time, naphtha in the refining sector is cracked to obtain different basic chemical products. According to the number of carbon atoms, it is divided into ethylene, propylene, carbon four, carbon five and aromatic hydrocarbon industry chains. In recent years, with the advancement of China's large-scale refining and chemical projects and the continuous growth of refining capacity, in 2020, China's refining capacity has exceeded 850 million tons/year, approaching the refining capacity of 900 million tons/year in the United States. In the past two years, with the construction and gradual commissioning of several large-scale refining and chemical projects in China, while there are no major new refining and chemical projects in the United States and some refineries have been shut down, China's refining capacity has exceeded that of the United States and become the country with the largest refining capacity in the world, about 920 million tons in 2023. In 2023, China's crude oil processing volume was 735 million tons, an increase of 8.73% year-on-year; the apparent consumption of crude oil was 756 million tons, an increase of 5.15% year-on-year, mainly due to the gradual recovery of downstream demand. In order to meet the huge domestic oil product demand, China has continuously increased crude oil exploration and development efforts, and crude oil production has shown a growing trend. In 2023, China's crude oil production was 209 million tons, an increase of 1.95% year-on-year. However, compared with China's existing processing capacity and processing volume, a large amount of crude oil still needs to be imported every year. In recent years, China's crude oil dependence on foreign countries has remained at about 70%. From the perspective of refined oil products structure, in 2023, China's refined oil product output was 428 million tons. Among them, gasoline production was 161 million tons, an increase of 11.03% year-on-year; kerosene production was 50 million tons, an increase of 68.47% year-on-year. In 2023, China's passenger traffic volume at the travel end gradually recovered, driving the increase in demand for refined oil products such as gasoline and aviation kerosene; diesel production was 217 million tons, an increase of 13.61% year-on-year, mainly due to the gradual economic recovery and the year-on-year rebound of China's logistics prosperity index; the oil product conversion rate (refined oil product output/crude oil processing volume) was 58.23%, an increase of 4.09 percentage points year-on-year. From the perspective of refined chemical products, in 2023, China's ethylene production was 31.89 million tons, an increase of 10.09% year-on-year. The self-sufficiency rate of ethylene equivalent has increased from less than 50% in 2018 to 67.4% in 2023.

Since 2023, the crude oil price has operated relatively stably, and the settlement price of WTI crude oil futures has fluctuated between US$70 and US$90 per barrel, lower than the average price in 2022. The trend of China's refined oil products is similar, and the overall fluctuation range is small, which is conducive to the profit restoration of refineries.

According to the "Guiding Opinions of the National Development and Reform Commission and Other Departments on Promoting the Green Innovation and High-Quality Development of the Refining Industry" issued by the National Development and Reform Commission in October 2023, by 2025, China's primary crude oil processing capacity will be controlled within 1 billion tons. The proportion of 10-million-ton refining capacity will be about 55%. All localities should promote the orderly elimination of 2-million-ton/year and below atmospheric and vacuum distillation units that do not meet national industrial policies in accordance with laws and regulations. In the future, the upper limit of China's refining capacity will be controlled within 1 billion tons, and the new production capacity of domestic refining projects will be limited. At the same time, under the background of fulfilling the "dual carbon" goal and the high-quality development of the chemical industry, backward production capacity will exit through market-oriented survival of the fittest or "reduction and replacement" and other means. In terms of demand, under the background of the accelerated development of clean energy substitution for energy, electric energy substitution for energy consumption, vehicle energy conservation and fuel substitution, the growth rate of refined oil demand may slow down. Large refining and chemical enterprises will actively promote "reducing oil and increasing chemicals", and the industrial structure of China's refining and chemical industry is expected to be further optimized.

The upstream of the salt chemical industry chain is commodities such as crude oil, raw salt, coke, and calcium carbide; the middle stream is important chemical products centered on polyvinyl chloride (PVC), caustic soda, liquid chlorine, soda ash, and ammonium chloride; the downstream is in fields such as pipes, profiles, alumina, glass, and inorganic salts.

In 2023, China's PVC, caustic soda, and soda ash production capacities all increased year-on-year. As basic raw materials, soda ash and caustic soda still maintain a relatively high capacity utilization rate. Affected by the contraction of downstream real estate industry demand, the supply-demand contradiction of PVC is still prominent, the price is at a low level, and most PVC enterprises are in a loss state. In 2024, there will still be new production capacity put into operation for PVC, caustic soda, and soda ash. However, there is no obvious sign of recovery in downstream demand for PVC, and the problem of oversupply is prominent.

(1) Soda ash

The downstream consumption structure of soda ash is mainly flat glass, daily-use glass, alumina, detergents, chemicals and others. Since 2017, China's soda ash production capacity has increased slightly, and production has fluctuated and increased. In 2022, there are not many actual production capacities put into operation in the market. Due to the postponement of previous production capacities, there is more new production capacity released for soda ash in 2023. Compared with the previous year, soda ash production capacity increased by 17.66%, production increased by 14.38% year-on-year, and capacity utilization rate decreased by 2.29 percentage points year-on-year. The concentration of the soda ash industry is continuously increasing. The production capacity of the top five enterprises has increased from 51.11% at the end of 2022 to 58.47% at the end of 2023. In 2023, China's apparent consumption of soda ash was 31.8181 million tons, an increase of 19.99% year-on-year, mainly due to the rapid growth of photovoltaic glass consumption driven by the development of the new energy industry and the increase in exports.

In 2023, the price changes of soda ash in China are affected by many factors and show a trend of high in the first half and low in the second half. In the first half of 2023, the supply and demand pattern of China's soda ash market remained in a tight balance. Supported by the continuous expansion of photovoltaic glass and lithium carbonate production capacity, soda ash prices remained firm. In the second half of the year, with the release of new production capacity, the demand for float glass declined. At the same time, due to the gradual restoration of overseas installations and the release of new production capacity, China's soda ash exports declined, which jointly led to the decline in soda ash prices in the second half of the year.

Looking forward to 2024, under the trend that China's new energy industry will still maintain rapid development, the photovoltaic glass and lithium carbonate industries will still have new production capacity in 2024, and the demand for soda ash is expected to further increase. However, in 2023, China's soda ash industry has a lot of new production capacity, and the new production capacity will be gradually released in 2024. At the same time, there is still about 2.7 million tons of soda ash under construction in China waiting to be put into production in 2024. It is expected that China's soda ash will be in oversupply in 2024, and the price center of soda ash may decline.

(2) Chlor-alkali

Polyvinyl Chloride (PVC)

Polyvinyl chloride is the world's largest general-purpose plastic in terms of production volume. Its production processes are divided into the calcium carbide method and the ethylene method. With the expansion of the domestic PVC industry scale and the maturity of production technology, China has become the largest producer of PVC. In recent years, China's PVC production capacity has been continuously increasing. In 2023, domestic PVC production capacity (ethylene method + calcium carbide method) increased compared to 2022. China's PVC production capacity is mainly concentrated in Inner Mongolia, Xinjiang, Shandong, and Shaanxi. In recent years, due to changes in supply and demand and export volume, PVC production has fluctuated and increased; PVC capacity utilization rate has also fluctuated and increased. Downstream products of PVC are mainly concentrated in real estate-related consumption fields such as pipes, profiles, and plates. Since 2022, as the real estate industry has weakened, the demand for PVC has decreased.

Since 2022, the PVC market price has fluctuated greatly and showed an overall downward trend, mainly due to the weakening prosperity of the downstream real estate industry. As of 2023, the price of PVC in China fluctuates around 6,000 yuan/ton, which is at a relatively low historical level. Most PVC enterprises are in a loss-making state.

In 2023, the cumulative year-on-year decline in China's real estate housing construction area was 7.20%. Although many real estate-related policies have been introduced at the national level to support it, the effect is limited. At present, Chinese residents still lack confidence in real estate. At the same time, combined with factors such as China's urbanization rate reaching a high level and the slowdown in population growth, the prosperity of the real estate industry is still hovering at the bottom, and the pull on PVC demand is limited. On the supply side, in 2024, China is expected to add 1.8 million tons of new PVC production capacity. Considering that PVC is already in a state of overcapacity, PVC enterprises will still face great operating pressure in 2024.

Caustic soda

In recent years, China's caustic soda production capacity has fluctuated and increased, and production has shown a continuous growth trend. The capacity utilization rate remains at a relatively high level. Due to the relatively good overall benefits of caustic soda products in the early stage, there was a significant increase in new production capacity in the caustic soda industry in 2023, and the industry supply and demand pattern turned to loose. As one of the basic chemical raw materials, caustic soda in China has a wide range of downstream application fields, mainly distributed in industries such as alumina, papermaking, printing and dyeing chemical fiber, water treatment, medicine, and new energy. Among them, the alumina industry has the largest demand for caustic soda, accounting for about 34% of caustic soda consumption; papermaking and printing and dyeing chemical fiber rank second and third respectively, accounting for about 13% and 10% respectively. Specifically, in 2023, the average production capacity of alumina in operation was 83.6708 million tons/year, which was still improved compared to 79.6833 million tons/year in 2022; in 2023, China's output of machine-made paper and paperboard was 144.055 million tons, a year-on-year increase of 6.6%. The growth in papermaking output drove an increase in the demand for caustic soda; in 2023, China's cumulative retail sales of textile and clothing increased by 12.90% year-on-year. Its moderate recovery helps the consumption support of caustic soda in the printing and dyeing and chemical fiber industries. In 2023, the apparent consumption of caustic soda products in China increased year-on-year.

In 2023, affected by changes in the supply and demand situation of the caustic soda product market, the price of caustic soda dropped rapidly in the first half of the year; after August 2023, the price of caustic soda rebounded. In the fourth quarter of 2023, caustic soda products had sufficient inventory and sluggish downstream demand, and the price was weak.

Looking forward to 2024, from the demand side, under the red line of 45 million tons of China's electrolytic aluminum production capacity, there is limited room for subsequent additions, which in turn limits the increase in alumina demand. Therefore, the increase in consumption of caustic soda in the alumina industry is limited. According to public information, in 2024, the papermaking industry still has a planned pulp production capacity of 1.85 million tons. It is expected that the demand for caustic soda will also increase. However, in recent years, with the development of technology and the increase in alkali recovery rate, the alkali consumption in the pulp and paper industry has decreased year by year. Therefore, the increase in demand for caustic soda is limited. The textile and clothing industry gradually recovered from the bottom in 2023 and is expected to continue to rebound in 2024. The demand for caustic soda in the printing and dyeing and chemical fiber businesses is expected to continue to increase. However, according to incomplete statistics from Zhuochuang Information (51.900, 3.33, 6.86%), there are still 4.75 million tons of planned new production capacity for caustic soda in 2024. The supply and demand of caustic soda will still remain loose. It is expected that in 2024, there is little room for a significant increase in the price of caustic soda products in China, and it may maintain a range-bound fluctuation.

The fertilizer industry is different from most chemical industries. Its downstream agriculture is non-cyclical, and consumption demand depends on population growth rate and food consumption structure. Therefore, the long-term demand for fertilizers remains stable. In addition, fertilizers are seasonal consumer goods, and prices are highly related to seasonal changes. The fertilizer industry chain as a whole is relatively sensitive to the prices of upstream chemical raw materials. In recent years, there has been a certain degree of overcapacity in the middle and lower reaches. There are differences in industry prosperity among segmented products.

In 2023, the price centers of nitrogen fertilizer, phosphate fertilizer, and potassium fertilizer products shifted downward, and industry prosperity fell from a high level. In 2024, there will be more new supply of urea products, promoting a loose supply of urea products. Chinese potassium fertilizer enterprises have a high degree of concentration and low potassium ore reserves. In the future, it will be difficult to expand production. However, there is a large demand gap for potassium fertilizer, and imports may continue to increase.

(1) Nitrogen fertilizer

Urea is currently the nitrogen fertilizer with the largest usage in China. Gas-based urea enterprises are mainly distributed in Sichuan, Yunnan, Guizhou and other regions, basically around natural gas resources. Coal-based urea mostly uses anthracite as raw material and is distributed in Shanxi, Henan and other places. As natural gas is valued and applied as a clean energy source, gas-based urea is gradually replaced by coal-based urea due to its lack of cost advantage. Coal-based urea (including coal water slurry method and fixed bed method) accounts for nearly 70% of the production capacity. Among them, the fixed bed method accounts for about 50%. From 2019 to 2023, China's urea production capacity showed a trend of first decreasing and then increasing. From 2019 to 2020, affected by supply-side structural reforms, China's urea industry concentrated on eliminating a batch of old and backward devices, and production capacity decreased year by year. However, since 2021, driven by the profitability of the urea industry, the industry capacity has been expanding. At the same time, the replacement of old and new urea production capacity has been completed. In 2023, the domestic urea production capacity was 72.7100 million tons/year, the annual output was 57.2324 million tons, and the capacity utilization rate was 78.71%.

Analyzing the demand structure of urea, the main demand for urea is the agricultural market demand, accounting for about 60.7%. In the industrial market demand, artificial boards and melamine account for 20% and 8% respectively. The demand for vehicle urea and boiler denitrification accounts for 3.5%, and other demands account for about 7.8%. Judging from the development trend of downstream demand, agricultural market demand is relatively stable. Industrial demand has a certain correlation with economic trends. Under the tightening of policies such as carbon peaking and carbon neutrality and environmental protection, the demand for vehicle urea is a growing field. In 2023, the apparent consumption of urea was 58.1419 million tons, of which urea exports increased by 50.30% year-on-year to 4.25 million tons.

In 2023, domestic urea prices fluctuated and fell in a "V" shape. In the first quarter of 2023, urea prices fluctuated within a certain range and were relatively stable. Starting from the second quarter of 2023, urea entered the off-season of demand. Coupled with insufficient support from raw material costs, urea prices plummeted. In mid-June 2023, downstream market demand increased, and urea prices warmed up quickly. However, due to the still high urea inventory, under supply pressure, urea prices continued to fall.

Looking forward to 2024, in terms of demand, agricultural demand in 2024 is expected to maintain rigid demand with little increase. Industrial demand is mainly based on the consumption of melamine, vehicle urea, etc. In 2024, the production profit of melamine factories is expected to remain low, and the operating rate will still be at a low level, which will not significantly drive the increase in demand for urea. Vehicle urea's main target customer group is diesel heavy trucks. In 2023, China's diesel production increased steadily, but under the background of clean energy substitution, the future growth is limited. In terms of supply, according to public information, in 2024, the increase in urea industry capacity is expected to be 4.25 million tons. Among them, the capacity put into production is expected to be 8.25 million tons, the eliminated capacity is 2.4 million tons, and the technological transformation capacity is 1.6 million tons. There is a lot of new production capacity, and most of them are new devices newly put into production. The increase in urea supply is relatively large. In 2024, the urea industry will still present a situation of loose supply, and the urea price center may decline year-on-year.

(2) Phosphate fertilizer

The main fertilizer varieties of phosphate fertilizer are monoammonium phosphate and diammonium phosphate. The main raw materials of both are sulfuric acid, phosphate rock and synthetic ammonia, but the usage of raw materials is slightly different. Most of China's phosphate fertilizers are used in the agricultural planting field and are an important driving factor for increasing grain production. They are mainly applied to products such as corn, vegetables, wheat and rice, accounting for 22%, 16%, 15% and 14% respectively. In terms of regional distribution, China's phosphate fertilizer production is mainly concentrated in Hubei, Guizhou, Yunnan and Sichuan. The total output of compound fertilizers in these four provinces accounts for more than 70% of the total compound fertilizer output. In the future, with the completion of the relocation and transformation of large and medium-sized enterprises with upstream and downstream advantages, the output of phosphate fertilizers in Hubei and other provinces is expected to increase.

Under the background of environmental protection policies, China's phosphate fertilizer production capacity has been continuously cleared. In 2023, the domestic production capacity of monoammonium phosphate was 23.1200 million tons/year, a decrease of 14.37% compared to 27.0000 million tons/year in 2017; the domestic output of monoammonium phosphate was 10.3876 million tons, with little change year-on-year. In 2023, China's diammonium phosphate production capacity was 25.1900 million tons/year, with little change; the domestic output of diammonium phosphate was 12.5866 million tons, a slight decrease year-on-year. Through supply-side reform to eliminate excess production capacity, the state of overcapacity in China's phosphate fertilizer supply has been greatly improved, and the industry capacity utilization rate has increased year by year. According to data from the China Phosphate and Compound Fertilizer Industry Association, due to changes in planting structure and fertilization habits, domestic demand for diammonium phosphate has decreased. In the future, phosphate fertilizer products will still tilt towards compound fertilizer varieties.

In 2023, the price trends of the main phosphate fertilizer products, monoammonium phosphate and diammonium phosphate, were basically the same, both showing a trend of first falling and then rising. At the beginning of 2023, affected by the continuous decline in raw material prices and sluggish market demand, product prices dropped significantly in the first half of the year. Starting from the second half of the year, due to the growth in product demand driven by the stocking season and the low market operating rate, product prices showed a trend of bottoming out and rebounding. After reaching the highest point in mid-November 2023, the price of diammonium phosphate remained stable; due to fluctuations in downstream demand, the price of monoammonium phosphate fell.

Looking forward to 2024, according to data statistics from Longzhong Information, in 2024, the new production capacity of monoammonium phosphate will be 400,000 tons, and at the same time, 350,000 tons of production capacity will be cleared. The increase in production capacity is not significant; the production capacity of diammonium phosphate is expected to remain stable at the current level. In terms of downstream demand, the demand for agricultural fertilizers is expected to maintain rigid and stable growth. Therefore, in 2024, the supply and demand of phosphate fertilizers are expected to maintain the current level, but the price of phosphate fertilizers is highly related to the price trend of raw materials such as phosphate rock. Phosphate rock is a non-renewable resource. With years of mining, the supply of high-grade ore is tight, and the price is expected to remain firm. The price of phosphate fertilizer is expected to remain high and fluctuate.

(3) Potassium fertilizer

Potassium fertilizer is mainly used in the agricultural field and is applied to field crops and cash crops. The main purpose is to increase the absorption of nitrogen and phosphorus elements by crops, thereby increasing crop yield and improving crop quality. In the past two years, affected by geopolitical conflicts, food security has received unprecedented attention from all countries. As a basic fertilizer raw material for stable grain production and increased yield, the downstream demand for potassium fertilizer mainly comes from agricultural planting. In the future, emerging market countries will contribute the main increment of the global population. The demand for improving land production efficiency per unit will constitute the core driving force for the long-term demand growth of potassium fertilizer (3.600, -0.13, -3.49%).

In recent years, China's potassium fertilizer production has fluctuated and increased. In 2023, the output was 10.8813 million tons, a year-on-year increase of 2.86%. In terms of resources, the distribution of global potassium resources is uneven and highly concentrated. Among them, Canada, Belarus and Russia are the three countries with the highest reserves in the world, accounting for 31.3%, 21.3% and 11.4% respectively, and together accounting for about 64% of the total global potassium salt resource reserves; China's reserves account for 10%, ranking fourth. China's potassium resources are generally scarce, and a large amount of potassium fertilizer needs to be imported to ensure domestic supply. The import dependence has always remained between 50% and 60%. In 2023, China's potassium chloride imports were 11.57 million tons.

China's potassium fertilizer production is concentrated in Qinghai and Xinjiang. In the past five years, China's production capacity of resource-based potassium fertilizer has remained basically stable, especially in the past three years, the production capacity has remained basically unchanged. At present, there are 24 resource-based potassium fertilizer enterprises in China and about 100 processing potassium fertilizer enterprises; there are 3 large-scale enterprises with a production scale of more than 1 million tons (physical quantity), among which Qinghai Salt Lake Industry Co., Ltd. has a potassium chloride production capacity of 5 million tons (physical quantity), Golmud Zangge Potash Fertilizer Co., Ltd. has a potassium chloride production capacity of 2 million tons (physical quantity), and SDIC Xinjiang Luobupo Potash Co., Ltd. has a total production capacity of potassium sulfate and potassium sulfate magnesium of 1.7 million tons (physical quantity). The three enterprises account for 74% of the total resource-based production capacity. Chinese potassium fertilizer enterprises have a high degree of concentration.

Since 2020, countries have attached significantly more importance to food security. Factors such as a decline in operating rates have also led to a shortage in potassium fertilizer supply. Coupled with the continuous increase in shipping costs, etc., it has promoted the demand and price of potassium fertilizer to gradually rise. Coupled with the sanctions on Belarusian potassium fertilizer by the European Union and the United States and the impact of the Russia-Ukraine conflict, the global potassium fertilizer market price reached a historical high price in the past 10 years in the first half of 2022. But then from July to November 2022, due to the weak recovery of the global economy, the prices of global commodities plunged significantly, and potassium fertilizer entered the off-season. The international market price of potassium chloride showed a downward trend. It stabilized again in December and then rose again; throughout 2022, the price trend of potassium fertilizer in China was basically the same as that in the international market. In the first half of 2023, the price of potassium fertilizer continued the downward trend; in the second half of 2023, benefiting from the growth in downstream demand, the price of potassium fertilizer bottomed out and rebounded. In the fourth quarter, due to winter storage, prices fluctuated.

(1) Polyester

Polyester products can be divided into polyester filament and polyester staple fiber, among which polyester filament is the main product. According to public information, since 2017, China's polyester filament production capacity has continued to expand, and production has maintained an overall growth trend. Since 2017, the industry capacity increment mainly comes from several leading enterprises such as Tongkun Group (15.350, 0.63, 4.28%), Xinfengming (15.560, 0.56, 3.73%), Hengyi Petrochemical (7.640, 0.00, 0.00%), Oriental Shenghong (9.990, -0.04, -0.40%) and Hengli Petrochemical (16.140, 0.29, 1.83%). At present, the polyester filament industry has a very high degree of industry concentration. The capacity of the top six companies in the industry accounts for nearly 70% of the national total capacity. As of the end of 2023, China's polyester filament production capacity was 51.68 million tons, a year-on-year increase of 8.05%; polyester filament production was 45.09 million tons, a year-on-year increase of 5.45%; apparent consumption was 36.64 million tons, a year-on-year increase of 22.87%. Although the overall oversupply market situation in the polyester filament industry still exists, in 2023, against the background of the recovery of domestic demand in China and a year-on-year significant increase of 20.99% in polyester exports, polyester filament has been in the process of destocking. At present, the industry inventory has significantly decreased compared to the high point in 2022. At the same time, the operating rate of polyester filament remained high in 2023. The average annual operating rate of polyester filament exceeded 80%, which was the highest level since 2017. The operating rates of downstream weaving and texturing machines of polyester filament increased, orders were transmitted upward, and the profitability of the polyester filament industry was gradually restored.

In terms of sales price, the polyester filament industry is connected to the petrochemical industry upstream and to the fields of textiles, clothing, automobiles and other industries downstream. The price fluctuation of polyester filament is affected by the fluctuation of upstream raw material prices and the industry supply and demand structure. In 2023, under the background of the overall recovery of industry demand but still relatively loose industry supply and demand structure, the price of polyester filament basically followed the trend of crude oil prices, rising slightly in the first quarter, falling in the second quarter, and rising in the third quarter; since October, with the fluctuating and falling of crude oil prices. As of the end of 2023, the mainstream market prices of POY, FDY and DTY are about 7,550 yuan/ton, 8,175 yuan/ton and 8,850 yuan/ton respectively, an increase of 300 yuan/ton, 200 yuan/ton and 300 yuan/ton compared with the beginning of the year. The mainstream market prices show an upward trend, but the overall price is at a relatively low historical level.

Looking forward to 2024, according to data from Baichuan Yingfu, the planned new production capacity of polyester filament in 2024 and 2025 is 2.65 million tons/year and 2.85 million tons/year respectively. Most of them are capacity expansions of leading enterprises. The overall industry supply growth rate will decline, the industry supply and demand pattern will be improved, and the industry concentration will also gradually increase. The polyester filament industry is expected to enter a development stage where the strong remain strong. From the demand side, according to the industry index of textile and apparel of Shenwan Industry, the current prosperity of the textile and apparel industry is at a medium to low level in the past 20 years. With the global economic recovery and the improvement of residents' living standards, industry demand is expected to gradually improve. However, China's real estate market is still sluggish and is expected to be difficult to boost the demand for home textile yarn. Based on the above analysis, in 2024, the price difference between upstream and downstream of polyester filament is expected to expand year-on-year, the profitability of enterprises is expected to improve year-on-year, but the oversupply phenomenon will still exist, and backward production capacity may continue to be passively cleared.

(2) Spandex

Spandex is an elastic fiber. At present, China has become the world's largest producer and consumer of spandex. With the promotion of the expansion plans of leading enterprises, the production capacity of the spandex industry continues to increase. According to data from China Chemical Fiber Information Network, in 2023, the global spandex production capacity is about 1.63 million tons; the domestic production capacity is 1.24 million tons, accounting for about 76.07%. In 2023, the net increase in domestic spandex production capacity was 143,000 tons, an increase of 13% compared with the end of 2022. Leading spandex enterprises, through building new production capacity, give play to their own advantages in technology and scale, squeezing out backward production capacity. The concentration of the domestic spandex industry is continuously increasing, the industry's leading effect is obvious, and the trend of survival of the fittest in the industry is intensifying. The main manufacturers are Huafeng Chemical (8.340, -0.03, -0.36%), Xinxiang Chemical Fiber (4.500, -0.15, -3.23%), Hyosung China, etc. The production capacity of the top five leading enterprises in the industry accounts for nearly 70%, and the industry concentration is high.

Since the fourth quarter of 2021, with the release of new production capacity and the impact of factors such as the sluggish macro economy making the market oversupplied as a whole, the high price of spandex has been adjusted downward. From January to February 2023, the price of spandex rose slightly. From late March to the end of the year, the overall price of spandex was in a downward range. As of the end of 2023, according to the CCFEI price index: the prices of spandex 20D and spandex 40D are about 34,500 yuan/ton and 30,000 yuan/ton respectively, which are already at a low level in recent years.

Looking forward to 2024, from the demand side, spandex is mainly added to textile and apparel made of synthetic fibers such as polyester, such as shirts, sportswear, underwear, silk stockings, etc. In 2021, due to the phased increase in demand for masks and sportswear caused by public health events, which in turn drove the explosive growth of demand for spandex products. However, the demand for spandex is highly correlated with domestic demand for textile and apparel. The demand for spandex has currently returned to the normal level. From the supply side, since 2021, driven by industry profitability, spandex production capacity has increased from 868,000 tons in 2021 to 1.24 million tons at the end of 2023. The supply side has increased significantly. At present, the phenomenon of oversupply in the industry is obvious, and enterprises are not profitable. In 2024, the spandex industry will still maintain an oversupply situation.

(3) Viscose fiber

Viscose fiber can be divided into viscose staple fiber and viscose filament according to fiber length. Since viscose fiber is often used to replace cotton for spinning rather than directly used for weaving, viscose staple fiber accounts for the majority in the product structure. In 2023, the annual output of viscose fiber was 4.168 million tons, accounting for 86.94%. In terms of the demand structure of viscose staple fiber, yarn dominates, with a demand as high as 90%. The rest is non-woven fabric. Yarn includes rayon yarn, blended yarn, etc. The end is mainly used in clothing, home textiles and other fields.

Due to the overcapacity expansion in the early stage and the sluggish downstream demand in the viscose staple fiber industry, at the same time, environmental protection issues such as "three wastes" are becoming increasingly prominent. Enterprises' annual investment in environmental protection is increasing year by year. Some small and medium-sized enterprises suffer serious losses. The operating rate reaches a historical low or even exits production. The production capacity is gradually cleared. Since 2021, there has been almost no capacity expansion in the industry. Leading enterprises have increased some production capacity through their own capacity expansion and industry mergers and acquisitions. The industry concentration has been greatly improved. The production capacity of the top three companies in the industry accounts for nearly 70% of the national total capacity. After experiencing capacity reshuffle, the current pattern of the viscose staple fiber industry has been relatively stable, mainly concentrated in leading enterprises such as Sateri, Zhongtai Chemical (4.920, -0.01, -0.20%), and Sanyou Chemical (5.690, -0.01, -0.18%). In 2023, the capacity utilization rate of viscose staple fiber is about 82.5%, an increase of 9.9 percentage points compared with last year. Since March 2023, the operating load rate of the viscose staple fiber industry has increased to a relatively high level.

In 2023, the price of viscose staple fiber was relatively stable in the first half of the year. In the second half of the year, the profit of the main downstream rayon yarn of viscose staple fiber was poor, and the market price of viscose staple fiber was lowered. The price of viscose staple fiber fell to the lowest point of the year. Then, supported by low inventory and rising costs, it rose to the highest point of the year. Finally, it entered the off-season of demand, and the price fell again. The price of viscose staple fiber fluctuated narrowly between 12,400 yuan/ton and 13,350 yuan/ton throughout the year. As of the end of 2023, the price of viscose staple fiber was 12,600 yuan/ton, a slight decrease compared with the beginning of the year.

Looking forward to 2024, after the rapid expansion period from 2017 to 2020 of viscose fiber, the industry operating rate from 2018 to 2022 was lower than 80%. In 2023, with the improvement of downstream demand, the profitability of viscose fiber gradually recovered from the bottom. Due to the obvious capacity expansion in the early stage, the industry will still be in the stage of digesting capacity in 2024. The phenomenon of oversupply in the industry will still continue in the short term. However, considering the gradual recovery of downstream terminal demand such as textile and apparel, the prosperity of the viscose fiber industry is expected to gradually pick up.

In addition to the above major chemical classifications, the chemical industry also involves segmented industries such as synthetic resins and fine and specialty chemicals. Representative varieties of synthetic resins include five major synthetic resins: polyethylene, polypropylene, polyvinyl chloride, polystyrene and ABS; fine and specialty chemicals usually refer to chemical products with specific application functions, intensive technology, strong commerciality and high added value. The following focuses on analyzing the segmented industries of polyolefin and rubber additives.

(1) Polyolefin (polypropylene, polyethylene)

The supply pattern of general products in China's polyolefin industry is weak. In 2024, China's polyolefin is still in a capacity expansion cycle, further limiting product prices and operating rates, and enterprises have limited profit margins. However, there is still a gap in high-end polyolefin products. In the future, China's polypropylene industry needs to continuously expand exports and increase research and development and production efforts for high-end products.

Since 2010, the global polyolefin production capacity has increased from 150 million tons/year to 245 million tons/year in 2022, with a compound annual growth rate of 4.2%. In terms of global capacity growth rate, the growth of global polyolefin capacity is mainly affected by the ethane cracking cycle in the United States from 2016 to 2018 and the large refining and cracking cycle of light hydrocarbons in China since 2020; since 2020, with the gradual completion and commissioning of projects in China's seven major petrochemical industry bases and the significant increase in the supply of light polyolefin raw materials (ethane, propane) brought about by the shale oil revolution in the United States, domestic polyolefin production capacity has increased significantly.

From 2015 to 2019, the average growth rate of China's polyolefin production capacity was only about 5%. Starting from 2020, a large number of refining-chemical integration projects have been put into production, and most of these projects are equipped with downstream PE devices. The continuous increase in new production capacity has an impact on supply. As of the end of 2023, China's polyolefin production capacity is 69.95 million tons/year, an increase of 6.47 million tons/year compared with the end of the previous year; the output is 59.64 million tons, and the industry capacity utilization rate is about 85%; the apparent consumption of polyolefin is 75.05 million tons, a year-on-year increase of 7.1%. The surplus of general products in China's polyolefin industry has led to a gradual decline in the industry operating rate since 2020. However, there is still a gap in high-end polyolefin products. In 2023, the import volume of polyolefin is 13.44 million tons.

In terms of price, the price of polyolefin as a whole fluctuated and declined narrowly. In 2023, the global economic growth rate slowed down, overseas demand was relatively weak, especially in Europe and the United States. At the same time, China's polyolefin is still in a period of concentrated expansion, and the supply is generally loose. The price of polyethylene (PE) in China fluctuated narrowly, with an average annual price of 8,511 yuan/ton, a year-on-year decrease of 9.40%; the average price of polypropylene drawing was 7,618 yuan/ton, a year-on-year decrease of 9.63%. In 2023, the overall industry profit of polypropylene was poor, and oil-based polypropylene and propane dehydrogenation to polypropylene (PDH) all suffered losses to varying degrees.

Looking forward to 2024, the growth rate of polyolefin production capacity is still relatively high, and the supply and demand pattern of general polyolefin products is still weak. In 2024, China's polyolefin is still in a capacity expansion cycle, further limiting product prices and operating rates, and enterprises have limited profit margins. There is still a gap in high-end products. In the future, China's polypropylene industry needs to continuously expand exports and increase research and development and production efforts for high-end products. Benchmarking products with global competitiveness and gradually replacing imports, continuously expanding polypropylene exports to resolve the pressure of oversupply.

(2) Rubber additives

In 2023, the significant year-on-year growth in China's tire production drove the total output and export volume of rubber additives to increase year-on-year. However, product prices and sales revenue decreased slightly year-on-year. In the future, the industry concentration is expected to increase.

The rubber additive industry is a branch of the fine chemical industry. With the continuous development and expansion of the tire industry and the completion of some rubber additive projects, the output of China's rubber additive industry has maintained growth, and its share in the global rubber additive market has increased year by year. China has become the world's major producer and supplier of rubber additives. According to statistics and estimates by the Rubber Additives Specialized Committee of the China Rubber Industry Association, domestic rubber additive production accounted for about 76% of the global total in 2022.

In 2023, the total output and export volume of China's rubber additives increased year-on-year, but product prices and sales revenue decreased year-on-year. According to statistics from the Rubber Additives Professional Committee of the China Rubber Industry Association, in 2023, the total output of rubber additives in China was 1.4986 million tons, a year-on-year increase of 9%; the export volume was 402,600 tons, a year-on-year increase of 2.2%, mainly due to the year-on-year improvement of China's logistics prosperity index, which led to a year-on-year increase of 17.44% in tire production. However, in 2023, the prices of high-performance rubber additive products declined, dragging down the overall income of the industry. In 2023, the cumulative industrial output value of China's rubber additive industry was 31.568 billion yuan, a year-on-year decrease of 2.7%; sales revenue was 31.34 billion yuan, a year-on-year decrease of 0.3%.

According to the "Guiding Outline for the '14th Five-Year' Development Plan of the Rubber Industry" released by the China Rubber Industry Association in November 2020, the predicted production target of rubber additives during the "14th Five-Year Plan" is 1.73 million tons, and the planned goal is that "the development speed of the rubber additive industry averages 5.7% per year"; industry concentration (the ratio of sales revenue of the top ten enterprises to the total industry) ≥75%, of which there are ≥2 enterprises with sales revenue of more than 3 billion yuan and ≥4 enterprises with sales revenue of more than 2 billion yuan. In the future, the industry concentration is expected to increase.

III. Industry outlook

In the short term, on the cost side, the price centers of crude oil and coal are expected to decline year-on-year in 2024, and the cost pressure on the chemical industry may be