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In 2018, as several new production facilities came online one after another, domestic production capacity for polycarbonate (PC) increased significantly. This led to a sharp drop in product prices, with these prices dropping almost by half by the end of the year compared to the beginning of it. However, many more companies plan to enter the market. According to incomplete statistics, in the coming years, the annual growth rate of domestic PC production capacity is set to increase further, with the scale of expansion exceeding 3 million tons, bringing the planned total capacity to 6.24 million tons. How should we view the explosive growth in domestic PC production capacity at present? What are the expectations for the PC market in 2019? How should businesses make their choices in the upcoming fierce competition? Our newspaper’s reporters recently visited some PC manufacturing companies as well as the China Synthetic Resins Supply and Marketing Association. With rapid expansion in production capacity for PC, polycarbonate has for many years been a **new type of polymer material that is strongly encouraged for development, and it is also one of the most widely used engineering plastics in this industry. At the same time, due to the reliable quality, reusability, and ease of recycling of the produced consumer goods, it meets the requirements of the circular economy advocated by ** and the industry; thus, it is an engineering plastic with excellent sustainability. PC consumption accounts for almost 50% of the total usage of engineering plastics, and its reliance on imports has remained high over the years; as a result, it has been a key area of support for new chemical materials in China. As new forms of industrialization, informatization, urbanization, and agricultural modernization advance at a faster pace, new market demands will arise – including those for new types of transportation systems, modern defense capabilities, aerospace technologies, urban construction, as well as public infrastructure such as roads and railways. There is also demand for traditional products such as electronic and electrical devices, sports equipment, medical devices, and office machinery. All these will create new and larger market opportunities for PCs. For this very reason, a wave of enthusiasm for expanding PC production capacity swept the country, with local authorities and large enterprises rolling out plans to build new facilities. According to incomplete statistics from the China Synthetic Resins Supply and Marketing Association, the domestic production capacity is set to exceed 3 million tons in the coming years; alone in 2018–2019, nearly 1 million tons of capacity is planned to come online through new facilities. In 2018 alone, three production units were put into operation one after another: in January, Wanhua Chemical announced that its PC production project had been successfully launched, with the first domestic production unit developed through independent research achieving successful operation from the very beginning ； In July, Lihua Yiwei Yuan Chemical announced that a new production line built as part of its expansion had been successfully put into operation, and by August the entire new capacity had been utilized ； In November, Luxi Chemical issued a statement indicating that the production process for the second phase of the PC project had been fully operationalized, and the trial operation was progressing smoothly. Yet the growth rate of demand lags far behind. A blue book released in August 2018 by the Polycarbonate Branch of the China Synthetic Resins Supply and Marketing Association (CNPCA) shows that domestic PC consumption in 2017 was nearly 1.8 million tons, accounting for over 40% of the global total consumption. It is expected that the growth rate of domestic PC demand will remain at 3%–5% in the coming years, with demand reaching 2.1 million to 2.2 million tons by 2022. China will eventually become a net exporter of PCs. The main polycarbonate manufacturers in China and their production capacities are shown in Table 1. Zheng Kai warned that, given the above circumstances, the industry must clearly recognize the mismatch between the growth rate of domestic PC production capacity and the growth rate of demand. A large amount of redundant production occurs in the mid-to-low-end segments; while this can meet the market demand for bulk production of such products, without the development of new application areas, such a large volume of products entering the market will lead to overall overcapacity in the industry. This will result in low efficiency operations on a long term, and in the end, it will severely harm the healthy development of the industry. I advise companies planning to enter the market to stay calm and cautious; blind investment could result in total losses. According to Zheng Kai, the PC Branch of the China Synthetic Resins Supply and Marketing Association is conducting a comprehensive survey of domestic PC manufacturers. The results of this survey will be submitted to the relevant ministries and agencies, and it will serve as a warning regarding the current development trends in the industry; the hope is that the industry will pay attention to the risks associated with the rapid growth in production capacity. Regarding the above issues, Huang Qishan, General Manager of the New Materials Division at Wanhua Chemical Group Co., Ltd., believes that the continuous entry of new companies indicates that there is still room for growth in the PC industry. However, it is not rational for these companies to enter the market without carefully considering factors such as long-term investment returns, sustainable development, and corporate social responsibility; rushing in en masse is not a sensible approach. “Factors such as readiness to enter new markets, the possibility of creating synergies with other segments of the company’s value chain, the advancement of production technologies, and whether costs are competitive need to be assessed before moving forward. ” Price plunge in 2018 – where are the opportunities in 2019? An imbalance in supply and demand at the fundamental level led to a sharp drop in PC prices in 2018. According to today’s plastic price statistics, on January 2, 2018, the mainstream price of PC in the East China market was as high as 31,120 yuan per ton; by December 4, it had dropped to 17,643 yuan per ton ； In the South China market, the price was 29,438 yuan per ton on January 2, and it dropped to 17,023 yuan per ton on December 4. Huang Qishan said that the sharp drop in prices was caused by a combination of internal and external factors. On the one hand, the supply and demand dynamics in the domestic PC market have reversed, with growth in demand from downstream sectors of the industry facing obstacles ； On the other hand, the global economy is not looking promising; falling oil prices for two consecutive months have led to a decline in the overall chemical industry. The market trend in 2019 was determined by fundamental factors; the supply and demand situation means that buyers will be more cautious next year, as will those involved in trading. Market volatility will decrease, with prices likely to remain fluctuating around a stable baseline. Huang Qishan believes that in the coming years, key sectors of the Chinese economy, such as the 5G market and new energy vehicles, could give rise to new demand for modified materials used in PC manufacturing. Further exploration of potential opportunities exists in these sectors; at present, they account for a small share of the total market and remain niche markets. As the pioneer of PC solutions and related products, as well as China’s largest PC manufacturer at present, Covestro is optimistic about the Chinese PC market in 2019. Since China is the world’s largest construction manufacturing industry as well as market for automobiles, trucks, and electronics and electrical products, it possesses huge growth potential in these fields. In recent years, the Chinese market has been driving the development of green industries and sustainable technologies, and these trends have imposed new requirements on chemical materials. This is precisely the direction of the company’s innovation. Strategically, Covestro will focus its business on three key areas: innovative mobility, electronics and home appliances, and healthcare, as the development of these industries has far outpaced that of some other traditional sectors, and PC holds great potential. Yang Lei, deputy head of the Sales and Procurement Department at Sinopec Mitsubishi Chemical Polycarbonate (Beijing) Co., Ltd., is quite optimistic about the prospects for the use of PC in the automotive industry. According to Yang Lei, the downstream markets for Sinopec Mitsubishi’s PC products are primarily in the construction materials and electronics and electrical industries; the company is also making early preparations for emerging application areas. Building competitiveness for the future: If all the PC projects currently planned are brought online as scheduled, it is foreseeable that competition in the domestic PC market will intensify in the future. With so many players competing, how can one leverage its own strengths to build competitiveness for the future? Zheng Kai emphasized that the rapid growth of China’s PC industry should shift from focusing on \"quantity\" to focusing on \"quality\"” ； PC companies should pursue self-disciplined development, plan the construction of capacity for basic resins in a scientific manner, and shift from scale expansion to the enhancement of innovation capabilities. Zheng Kai believes that in certain fields, brands produced abroad still hold a dominant position and occupy the mid-to-high-end market. Domestic companies, as well as domestic joint ventures, are still in the stage of catching up at present. Application development, particularly the development of innovative applications, such as the integration of new materials with new mobile technologies, new materials with the Internet of Things, and new materials with smart home appliances and smart homes, will open up new possibilities for PCs. At present, domestic companies have not made significant breakthroughs in the field of high-quality and specialty-performance PCs. This area is also a critical battleground for companies to establish differentiated competitive advantages in the future. **Targeted efforts should be made to encourage the development of mid-to-high-end products, in order to avoid a situation where there is a structural shortage of such products in the future, given the overall overcapacity. Wanhua Chemical still has plans to expand its capacity at its Yantai facility in the future. In the competitive landscape of the future, competitors will not focus on a single product, but rather look at the entire value chain. Wanhua Chemical is currently the leader in China’s MDI-polyurethane industry, and it relies on the advantages of its entire industrial chain; in the future, the expansion of PC production will also take the availability of supporting facilities within this industrial chain as an important factor to consider. Although Wanhua Chemical’s PC products have only been put into commercial use this year, the company has been involved in the PC industry for over a decade. The interfacial polycondensation process used for the 70,000-ton production capacity put into operation this year is a technology that the company developed independently at a cost of hundreds of millions of yuan, and which was successfully tested on a pilot scale at its Ningbo facility. Its strong technical capabilities and investment in research and development give Wanhua Chemical confidence for the future. Over the next 5 years, Wanhua Chemical will gradually increase its influence in the new materials sector in terms of technology, scale, industrial infrastructure, and product portfolio (including PC, PP, PE, PVC, PA, PMMA, etc.). The company’s vision is to become a world-class enterprise in the field of new chemical materials. At present, China’s PC market still relies to some extent on imported products. As a multinational company, Covestro aims to achieve a balance in production capacity at the local, regional, and global levels. At the same time, Covestro also sees potential for PC in the areas of vehicle lightweighting, as well as in the electronics, electrical, and home appliance sectors. In the future, the company will not only meet the growing needs of its existing customers but also expand its customer service scope; its products will be supplied to the Chinese market as well as to meet the demands of markets in the Asia-Pacific region and other parts of the world. In the face of these new changes, Covestro will continue to adhere to the two strategies of innovation and sustainable development. In terms of innovation, the company plans to deepen open innovation and strive to become an innovative partner for its customers, providing comprehensive support from research and development to production. This year, in collaboration with MINE MIRS, Covestro was fully involved in the material selection and design of their smart light-refining glasses, a product that won the 2018 German iF Design Award as well as the American IDEA Award for outstanding industrial design. Competition produces the strong. More than half a century ago, in the 1950s, when PC materials were first developed, a struggle over patent priorities ensued. Dr. Hermann Schnell from the German company Bayer and Dr. Daniel Fox from the American company General Electric invented this new material almost at the same time. In the end, the U.S. Patent Office awarded the patent for PC production to Bayer simply because its invention was developed a week earlier. The PC market in China is currently highly competitive. How can orderly competition be achieved to put the industry on a healthy track and enable China to become a true powerhouse in the PC industry? It’s time for competitors in the industry to consider what path to take in the future. Source: China Chemical Industry Information Magazine