How severe is the ‘competition’ in dimethyl carbonate? 60% price cut in half a year!

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Entering the second quarter, the price of dimethyl carbonate (DMC) declined at an accelerated pace. “Around May Day, the price of electronic-grade products in the Shandong market dropped to 5,700 yuan per ton (the same unit is used hereafter), while the price of industrial-grade products fell below 5,000 yuan, representing a 60% decline from the peak levels seen in October last year. Nevertheless, in recent times several companies have announced plans to enter the DMC sector, with planned production capacities exceeding 800,000 tons per year. “Dimethyl carbonate may appear ‘very attractive’, but in reality there is an overcapacity issue, and demand has been weak recently, leading to a rapid decline in prices and further compression of profit margins. It is recommended that the industry approach investments with caution and view the ‘benefits’ associated with the development of new energy sources carefully. ”Bai Guohua, deputy marketing director of Shandong Hualu Hengsheng Chemical Co., Ltd., said. “The prospects for the use of money are positive as more chemical companies enter this field; DMC has a wide range of applications and is regarded as the \"new cornerstone\" of organic synthesis today. Among them, industrial-grade products are mainly used as organic chemical intermediates, solvents, gasoline additives, etc., while high-purity products can be used in lithium battery electrolytes. With the rapid development of new energy vehicles in China, the demand for lithium batteries as well as the upstream electrolytes and solvents has increased sharply, driving a significant rise in DMC production capacity. According to statistics from Huajing Industry Research Institute, by the end of 2021, the national DMC production capacity was 1.256 million tons per year, an increase of 35.6% compared with the previous year. Not only is production capacity increasing, but DMC prices are also rising steadily. Among them, the price of electronic-grade DMC reached a peak of 14,000 yuan on October 20 last year, an increase of 108% compared to the beginning of last year. Thanks to the soaring prices of their products, several companies that specialize in DMC have made huge profits. Among them, Shandong Sinopec Shenghua Chemical Group Co., Ltd. achieved a net profit attributable to the parent company of 1.178 billion yuan last year, a increase of 353.6% compared with the previous year. With the rapid development of new energy vehicles and the industry’s optimism regarding the prospects of lithium batteries, more and more companies are beginning to focus on DMC. At the beginning of 2020, Hualu Hengsheng developed an new process for co-producing DMC from ethylene glycol as well as new catalytic technologies. In October 2021, a DMC production facility with an annual capacity of 300,000 tons was built, and this technology has been successfully applied in fields such as lithium batteries. Entering 2022, interest in DMC investments remained strong. In addition to the facilities under construction at Shida Shenghua (Quanzhou) Co., Ltd. and Hubei Sanning Chemical Co., Ltd., a number of chemical companies, including Lihua Yiweiyuan Chemical Co., Ltd. and Jiangsu Suopu Chemical Co., Ltd., plan to invest in the construction of DMC projects. Among them, a subsidiary of Jiangsu Supor plans to invest 2.181 billion yuan to build a DMC production facility with an annual capacity of 200,000 tons, while Shaanxi Coal Group Yulin Chemical Yugaoxin Materials Co., Ltd. plans to invest 4.62 billion yuan to construct a DMC production facility with an annual capacity of 500,000 tons in two phases. There is severe overcapacity and intense competition in this sector; many chemical companies are optimistic about DMC, driven primarily by the rapid development of new energy vehicles, and view DMC as an important part of industrial expansion and transformation. However, with the rapid increase in production capacity, there is a significant gap between market expectations and actual performance, leading to fierce competition in a \"red ocean\" environment and industry \"involution\". “Looking at the two main downstream applications of DMC, namely polycarbonates and electrolyte solvents, a temporary decline in demand has suppressed market activity. ”Sha Yanhong, an industry analyst at Zhuochuang Information, noted that due to the high prices of lithium battery raw materials such as carbonates, there is a strong tendency among downstream manufacturers to wait and see. Recently, pandemic control measures have affected the supply chain, leading to a decline in production rates among new energy vehicle manufacturers in cities such as Shanghai, which in turn has reduced the demand for electrolytes. Driven by the imbalance between supply and demand, DMC prices have continued to fall, dropping by 44% compared to the prices before the festival. As a result, the profits of DMC companies also decreased significantly. It is understood that there are three main production processes for DMC. Given the high prices of coal and chemical raw materials at present, as well as the continuous decline in the prices of DMC and ethylene glycol, the epoxide propylene (PO) transesterification method (which produces propylene glycol as a by-product) remains profitable ； Break-even analysis for methanol gas-phase carbonylation and methanol liquid-phase transesterification in coal-based routes ； The ethylene oxide (EO) transesterification method (producing ethylene glycol as a by-product) is currently unprofitable. In Bai Guohua’s view, the DMC market remains pessimistic in the second quarter: supply volume in April was around 95,000 tons, while market demand was only 72,000 tons, resulting in a significant imbalance between supply and demand. “Summer is a slow period for the solvent market; it is expected that the market will remain sluggish in May and June. Companies with outdated technology, small scale, and high costs will face increased operational pressures, and the DMC market is set to experience a period of restructuring. ”Bai Guohua analyzed. To enrich their product portfolios, DMC manufacturers are seeing rapid declines in prices, leaving little profit margin; meanwhile, the prices of products such as ethyl methyl carbonate (EMC) and diethyl carbonate (DEC) remain above 10,000 yuan per unit. Therefore, DMC companies are also exploring ways to extend their industrial chains and broaden their product ranges. On April 20, Satellite Chemical Co., Ltd. announced that construction has begun on its battery-grade carbonate production facility. The capacity of the first phase of this facility is 150,000 tons per year, covering products such as DMC, EMC, and DEC. Trial production is scheduled to start in the fourth quarter of 2022, in order to supply high-quality and comprehensive electrolyte solvent products to downstream industries. Companies such as Hualu Hengsheng and Shida Shenghua are also continuously expanding their range of solvent products, aiming to become one-stop suppliers of raw materials. After successfully topping the DMC production rankings, Hualu Hengsheng developed DEC and EMC products at the beginning of 2022; it is currently launching high-end solvent projects to further expand and improve its carbonate product portfolio. It is reported that Hualu Hengsheng has established business partnerships with most of the electrolyte clients in the industry, and has reached annual cooperation agreements for multiple products with leading companies. Industry analysts believe that several of Hualu Hengsheng’s products possess industrial scale and can be integrated with the production system, giving it a clear competitive advantage. Shida Shenghua is advancing into the broader field of new energy battery components. Recently, Shida Shenghua has issued several announcements stating its intention to leverage its strengths in carbonate solvents to expand its operations by launching a 300,000-ton/year electrolyte production project, to further develop its lithium battery materials business, and to set up a 50,000-ton/year production facility for wet electronic chemicals. Through the continuous implementation of the above projects, Shida Shenghua will transform from a one-stop electrolyte material supplier into a comprehensive service provider for electrolytes and materials.