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Acrylonitrile-Butadiene-Styrene Copolymer (ABS): Struggling Market with Capacity Expansion
2023/5/26
Since the beginning of this year, the Acrylonitrile-Butadiene-Styrene (ABS) copolymer market has been stagnant, with prices nearing the 10,000 yuan per ton mark, along with low prices, reduced operating rates, and thin profits, reflecting the current market situation. In the second quarter, the pace of capacity expansion in the ABS market has not slowed down, exacerbating the market competition and increasing the risk of a price war pushing prices below 10,000 yuan.
Significant Increase in Capacity
In the first quarter of 2023, domestic facilities were put into operation, leading to a substantial increase in ABS production. According to preliminary statistics from JLC, China's cumulative ABS production reached 1.2816 million tons in the first quarter of 2023, an increase of 44,800 tons compared to the previous quarter and 90,200 tons year-on-year.
"Domestic projects such as Lihua Yi, Zhejiang Petrochemical, and Jihua Jieyang have contributed to the increase in production by 11.05% quarter-on-quarter and 22.25% year-on-year. Only Jihua Jieyang and Zhejiang Petrochemical have a total ABS capacity of 1 million tons per year. Currently, the total domestic ABS industry capacity has reached 6.455 million tons per year," said Zheng Xin, an analyst at JLC Information.
The significant increase in capacity has put pressure on the market. Although ABS prices have not experienced a sharp decline, the overall market has continued to fluctuate downward, with a price difference of around 1,000 yuan. Currently, the price of the product with the code 0215A is 10,400 yuan.
Industry insiders have indicated that the reason ABS market prices have not plummeted is primarily due to high production costs and the high inventory costs borne by traders. Additionally, the limited release of qualified products from Zhejiang Petrochemical and Jihua Jieyang has contributed to the low market prices.
Looking ahead to the second quarter, market experts, including Zheng Xin, believe that Shandong Haijiang's 200,000 tons/year, Gaoqiao Petrochemical's 225,000 tons/year, and Daqing Petrochemical's 100,000 tons/year new facilities are expected to start production. Combined with the potential increase in the load of Zhejiang Petrochemical and Jihua Jieyang facilities, the domestic supply of ABS is expected to continue to increase. This may lead to a downward trend in ABS market prices, with the possibility of low-end material prices falling below 10,000 yuan.
Narrowing Profit Margins
With the continuous release of new capacity, ABS market prices have remained low, leading to a shrinking profit margin. Both the East China and South China markets, as well as emulsion and bulk markets, have intensified the battle to gain market share, further reducing profit margins.
Chu Caiping, an analyst at Jinyindao, explained that based on first-quarter data, ABS petrochemical companies theoretically had an average profit of 566 yuan, a decrease of 685 yuan compared to the previous quarter and a decrease of 2,359 yuan year-on-year. Profits have significantly shrunk, and some low-end material companies are theoretically operating at a loss.
In April, the price of ABS raw material styrene rose and then fell, while butadiene and acrylonitrile prices increased, resulting in higher production costs and decreased profits for ABS. Currently, the theoretical average profit for ABS is around 192 yuan, approaching the cost
line.
Looking ahead, there is potential for a weakening of crude oil prices, which may have a slightly negative impact on the overall macroeconomic conditions. The strong performance of international aromatics is expected to provide some support to the price of ABS raw material styrene. Currently, downstream inventory levels are not low, combined with low stocking sentiment, and the spot market is not active. Therefore, it is expected that the overall ABS market will continue to experience narrow fluctuations.
Wang Chunming, General Manager of Shandong Ruiyang Chemical Co., Ltd., stated that the short-term supply-side price support for ABS raw material butadiene is high, coupled with downstream restocking demands, which may keep the market firm at higher levels. It is expected that there will be limited availability of low-priced sources in the domestic butadiene market in the short term, maintaining a strong market trend.
"The acrylonitrile market may have a slight upward trend. The start of the Lihua Yi facility maintenance plan may temporarily reduce supply in certain areas, leading to a small rebound in the market. However, there is an expected decrease in operating rates in the downstream acrylic fiber and acrylamide industries, so the overall fundamentals lack sufficient positive factors, and the market's upward potential is limited." Wang Chunming believes that, overall, the cost situation remains stable with minimal fluctuations. The ABS market will continue to be driven by supply and demand, and therefore, there is little expectation for significant improvement in profit conditions in the future.
Declining Demand in the Peak Season
Although there was an increase in demand in the first quarter, the continuous release of ABS capacity has exacerbated supply-demand imbalances, resulting in a lackluster peak season.
Data from the National Bureau of Statistics shows that in the first quarter, cumulative production of household refrigerators reached 22.266 million units, an 8.4% year-on-year increase; room air conditioners reached 62.601 million units, a 12.6% year-on-year increase; and household washing machines reached 22.953 million units, a 6.9% year-on-year increase. "In the first quarter, the air conditioner and refrigerator production of downstream ABS showed year-on-year growth rates between 10% to 14%, while washing machines had a 2% year-on-year increase. Overall, there was an increase in terminal demand. However, the impact of ABS new facilities put into operation this year has counteracted this positive influence," explained Wang Chunming.
From a macro perspective, international oil prices have been fluctuating at high levels, and the cost support for chemicals remains unchanged. The overall trend for the domestic economy is gradually recovering, but structural differences have not been completely eliminated, and demand for major consumer categories on the demand side still lags behind supply.
Significant Increase in Capacity
In the first quarter of 2023, domestic facilities were put into operation, leading to a substantial increase in ABS production. According to preliminary statistics from JLC, China's cumulative ABS production reached 1.2816 million tons in the first quarter of 2023, an increase of 44,800 tons compared to the previous quarter and 90,200 tons year-on-year.
"Domestic projects such as Lihua Yi, Zhejiang Petrochemical, and Jihua Jieyang have contributed to the increase in production by 11.05% quarter-on-quarter and 22.25% year-on-year. Only Jihua Jieyang and Zhejiang Petrochemical have a total ABS capacity of 1 million tons per year. Currently, the total domestic ABS industry capacity has reached 6.455 million tons per year," said Zheng Xin, an analyst at JLC Information.
The significant increase in capacity has put pressure on the market. Although ABS prices have not experienced a sharp decline, the overall market has continued to fluctuate downward, with a price difference of around 1,000 yuan. Currently, the price of the product with the code 0215A is 10,400 yuan.
Industry insiders have indicated that the reason ABS market prices have not plummeted is primarily due to high production costs and the high inventory costs borne by traders. Additionally, the limited release of qualified products from Zhejiang Petrochemical and Jihua Jieyang has contributed to the low market prices.
Looking ahead to the second quarter, market experts, including Zheng Xin, believe that Shandong Haijiang's 200,000 tons/year, Gaoqiao Petrochemical's 225,000 tons/year, and Daqing Petrochemical's 100,000 tons/year new facilities are expected to start production. Combined with the potential increase in the load of Zhejiang Petrochemical and Jihua Jieyang facilities, the domestic supply of ABS is expected to continue to increase. This may lead to a downward trend in ABS market prices, with the possibility of low-end material prices falling below 10,000 yuan.
Narrowing Profit Margins
With the continuous release of new capacity, ABS market prices have remained low, leading to a shrinking profit margin. Both the East China and South China markets, as well as emulsion and bulk markets, have intensified the battle to gain market share, further reducing profit margins.
Chu Caiping, an analyst at Jinyindao, explained that based on first-quarter data, ABS petrochemical companies theoretically had an average profit of 566 yuan, a decrease of 685 yuan compared to the previous quarter and a decrease of 2,359 yuan year-on-year. Profits have significantly shrunk, and some low-end material companies are theoretically operating at a loss.
In April, the price of ABS raw material styrene rose and then fell, while butadiene and acrylonitrile prices increased, resulting in higher production costs and decreased profits for ABS. Currently, the theoretical average profit for ABS is around 192 yuan, approaching the cost
line.
Looking ahead, there is potential for a weakening of crude oil prices, which may have a slightly negative impact on the overall macroeconomic conditions. The strong performance of international aromatics is expected to provide some support to the price of ABS raw material styrene. Currently, downstream inventory levels are not low, combined with low stocking sentiment, and the spot market is not active. Therefore, it is expected that the overall ABS market will continue to experience narrow fluctuations.
Wang Chunming, General Manager of Shandong Ruiyang Chemical Co., Ltd., stated that the short-term supply-side price support for ABS raw material butadiene is high, coupled with downstream restocking demands, which may keep the market firm at higher levels. It is expected that there will be limited availability of low-priced sources in the domestic butadiene market in the short term, maintaining a strong market trend.
"The acrylonitrile market may have a slight upward trend. The start of the Lihua Yi facility maintenance plan may temporarily reduce supply in certain areas, leading to a small rebound in the market. However, there is an expected decrease in operating rates in the downstream acrylic fiber and acrylamide industries, so the overall fundamentals lack sufficient positive factors, and the market's upward potential is limited." Wang Chunming believes that, overall, the cost situation remains stable with minimal fluctuations. The ABS market will continue to be driven by supply and demand, and therefore, there is little expectation for significant improvement in profit conditions in the future.
Declining Demand in the Peak Season
Although there was an increase in demand in the first quarter, the continuous release of ABS capacity has exacerbated supply-demand imbalances, resulting in a lackluster peak season.
Data from the National Bureau of Statistics shows that in the first quarter, cumulative production of household refrigerators reached 22.266 million units, an 8.4% year-on-year increase; room air conditioners reached 62.601 million units, a 12.6% year-on-year increase; and household washing machines reached 22.953 million units, a 6.9% year-on-year increase. "In the first quarter, the air conditioner and refrigerator production of downstream ABS showed year-on-year growth rates between 10% to 14%, while washing machines had a 2% year-on-year increase. Overall, there was an increase in terminal demand. However, the impact of ABS new facilities put into operation this year has counteracted this positive influence," explained Wang Chunming.
From a macro perspective, international oil prices have been fluctuating at high levels, and the cost support for chemicals remains unchanged. The overall trend for the domestic economy is gradually recovering, but structural differences have not been completely eliminated, and demand for major consumer categories on the demand side still lags behind supply.
In addition, in April, overall production volumes for companies such as Gree, Haier, and Hisense were lower than in March, while ABS supply still exceeded demand. Furthermore, May and June are traditionally the off-peak seasons for home appliance manufacturers, with generally lower actual demand. Given the subdued demand expectations, the future trend of ABS market prices is expected to remain weak.
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