The supply and demand pattern is excellent, and the silicone boom cycle is on the way. As of July 29, 2018, the latest offer for silicone DMC was 35,000 yuan/ton, up 79% year-on-year; the spread was 22,988 yuan/ton, up 147% year-on-year. The silicone industry is in a high boom cycle, mainly due to the excellent supply and demand pattern of the industry. In the short-term, the maintenance of the silicone off-season industry, the decline in operating rates led to strong prices, while the price gap between raw materials prices continued to expand, and profitability continued to increase. In the long run, at the supply end, domestic and international production capacity growth rate is slowing down, there is no room for improvement in operating rates, and corporate concentration continues to rise. On the demand side, domestic demand continues to increase, and external demand growth is strong, driving the rapid growth of organic silicon demand, silicone. The high boom cycle is expected to continue.


Supply side: The growth rate of production capacity at home and abroad has declined, and there is no room for improvement in the operating rate. The concentration of enterprises continues to rise. (1) The growth rate of production capacity has slowed down. Domestic: 16 years of negative domestic production capacity, 17 years of production capacity only increased by 10% through technological transformation, 18 years without new capacity, the device was first put into production in the second half of 2019, it is expected that there will be no new capacity impact before this; foreign: overseas The compound annual growth rate of organic silicon production capacity in the past decade is only 1.84%, and it is expected that there will be no new capacity added overseas in 2020, which is at the bottom of the production cycle. (2) The operating rate is limited in flexibility. In 2017, the operating rate of domestic organic silicon monomer enterprises continued to maintain a high level of over 80%. In 2018, Q2 was as high as 94%. The operating rate has no upward flexibility. The current industry is in the off-season maintenance period, and the industry operating rate is expected to drop sharply. (3) Industry concentration is expected to continue to improve, and industrial chain integration will accelerate the layout. At present, there are only 12 companies left in the industry, and the overall competitive landscape is continuously optimized. The planned capacity expansion in the future comes from leading enterprises, and industry concentration is expected to further increase.


Demand side: domestic demand continues to increase, and external demand continues to be strong. Domestic demand: We analyze the high demand for silicone from two dimensions. (1) From the perspective of downstream consumption structure, silicone rubber and silicone oil drive high demand for organic silicon. Silicone rubber and silicone oil are the two largest areas of demand for silicones, with demand accounting for 68% and 20% respectively. Both capacity and output maintained a high growth trend. In 2017, the production capacity growth rate was 11.2% and 18.5%, respectively. The output growth rate was 11.6% and 12.7% respectively, which promoted the high growth of organic silicon demand. We expect that demand for silicones will continue to grow at a high rate as subsequent capacity and production of silicone rubber and silicone oil continue to grow. (2) From the perspective of downstream consumption, construction, electronics, textiles, automobiles and medical care accounted for 36%, 19%, 16% and 7% respectively. At a time when monetary policy and policy policies tend to be marginal, we believe that the new construction area of real estate will maintain a high growth rate in the second half of the year, driving demand in the construction sector to maintain growth, while the electronics and textile sectors continue to increase. The demand for silicones continues to improve. External demand: The equipment of overseas major silicone monomer manufacturers is aging and the construction is unstable, which will accelerate the growth of China's organic silicon monomer export. In 2017, the export growth rate reached 53.41%. In 2018, the export of organic silicon continued the growth momentum in 2017. The export volume in the first quarter increased by 59.26% year-on-year, which is the single-season high since the first quarter of 2012. We expect to maintain a high growth in the follow-up. situation.


Cost end: cost support price center uplift. For each ton of silicone intermediate DMC produced, 0.58 tons of metal silicon and 1.3 tons of methanol are consumed respectively. At the current price, metal silicon and methanol account for 52% and 27% of the cost of the silicone intermediate DMC material, respectively. (1) The price center of metal silicon is expected to move up. Benefiting from the high growth of downstream demand and the mild supply and support of superimposed costs, we expect the metal silicon price hub to remain high. (2) The methanol price center is expected to be high. The supply and demand pattern of methanol is still improving. The demand side will benefit from the increase in demand for MTBE and methanol hydrogen production. The supply end will continue to be suppressed due to environmental factors and other factors. The cost end will increase due to the increase in natural gas. It is expected that the methanol center will still move up. .


We mainly recommend Xin'an shares. The company is China's second largest silicone monomer enterprise and one of the largest herbicide glyphosate production enterprises. It has a glyphosate production capacity of 80,000 tons and a silicone monomer production capacity of 340,000 tons, equivalent to DMC's equity production capacity of 145,000 tons. The company integrates two wings, the advantages of chlorine cycle integration are obvious, and the production cost is effectively reduced; the proportion of downstream deep processing products of silicone is continuously increased, and the added value of products is continuously improved. Secondly, we recommend focusing on Hesheng Silicon Industry. The company has a metal silicon production capacity of 350,000 tons and the world's largest production capacity. It has an organic silicon monomer production capacity of 360,000 tons, equivalent to an equity DMC production capacity of 171,000 tons. It is the most complete business chain in the country. The largest silicon-based new materials company has obvious advantages in operating costs of integrated silicon and coal power. According to our calculation of performance elasticity, according to the elasticity from high to low, we recommend focusing on Hesheng Silicon (603260), Xinan (600596) and Sanyou Chemical (600409). DMC increases by RMB 1,000/ton and EPS elasticity is RMB 0.18. , 0.14 yuan and 0.04 yuan / ton.


Risk warning: the risk of sluggish downstream demand; the risk of slowing overseas demand; the risk of new capacity being put into production.