Shenwan Hongyuan released a research report stating that China's organic silicon industry is expected to continue capturing overseas market share with its cost advantages, and both domestic and international demand for organic silicon are poised for resonance. The organic silicon industry inflection point has emerged with improving supply-demand dynamics and significant upward elasticity. The firm believes companies with scale advantages and industrial chain integration capabilities, as well as those excelling in downstream deep processing, are well-positioned, including Hesheng Silicon Industry (603260.SH), Dongyue Silicone Material (300821.SZ), Xingfa Group (600141.SH), Sinochem Lantian (600596.SH), Luxi Chemical (000830.SZ), and Sanyou Chemical (600409.SH).
Shenwan Hongyuan's main viewpoints are as follows:
**Superior Performance of Organic Silicon Materials with Wide Applications Across Economic Sectors**
The organic silicon industrial chain consists of metallic silicon upstream, monomers and intermediates in the midstream, and downstream deep-processed products including silicone rubber, silicone oil, and silicone resin. Organic silicon products contain both "organic groups" and "inorganic structures," and this unique composition and molecular structure combines the characteristics of organic compounds with the functions of inorganic materials. This distinctive molecular structure endows organic silicon materials with superior properties such as adhesive sealing, high and low temperature resistance, and weather resistance, leading to widespread downstream applications in construction, power, electronics, automotive, textiles, personal care, and various other sectors of the national economy.
**Domestic and International Demand Resonance Driving Growth, New Energy Catalyzing Incremental Demand**
China's organic silicon consumption accounts for approximately 60% of global consumption. 1) Domestic demand: According to Baiinfo data, China's apparent consumption of organic silicon DMC reached 1.82 million tons in 2024, up 21% year-over-year, with growth accelerating to 24% in the first half of 2025, maintaining high prosperity levels. In recent years, the organic silicon consumption structure has continuously transformed, with real estate's share of downstream demand declining annually to less than 25%, reducing marginal impact, while demand from new energy vehicles and photovoltaics remains strong, supporting continued high prosperity in domestic organic silicon demand. 2) International demand: Per capita organic silicon consumption is generally proportional to per capita GDP levels, with significant room for improvement in emerging countries across Asia, Africa, and Latin America. In 2024, domestic polysiloxane exports reached 545,600 tons, up 34% year-over-year. Although growth slowed to 4% in the first half of 2025 due to short-term impacts from macroeconomic demand fluctuations and tariff expectations, China's organic silicon industry is expected to continue capturing overseas market share through cost advantages, with domestic and international demand poised for resonance.
**Overseas Capacity Reduction, Domestic Capacity Peaking, Industry Cost Curve Flattening, Strong Profit Recovery Demand**
1) Overseas capacity: Constrained by costs and environmental factors, overseas organic silicon DMC capacity has been gradually withdrawn in recent years, with current total overseas organic silicon DMC capacity at 800,000 tons/year, and further reduction expectations cannot be ruled out. 2) Domestic capacity: Following the prosperity cycle in 2021, domestic organic silicon DMC capacity expanded rapidly, reaching 3.44 million tons by the end of 2024, nearly doubling from 2020 levels. The current expansion cycle has ended, with relatively high industry concentration and a CR5 of 62%. 3) From a profitability perspective, DMC cost differences among manufacturers are relatively small. Even though some companies can enhance profitability through downstream deep processing, the overall sector has experienced prolonged losses, with DMC price and spread percentiles at 1% and 6% respectively, indicating strong industry profit recovery demand.
**Industry Inflection Point Emerged, Improving Supply-Demand Dynamics, Significant Upward Elasticity**
Reviewing historical prices of organic silicon intermediate DMC typically shows high elasticity with significant demand and cost-driven characteristics. From the current standpoint, on the supply side, China's organic silicon DMC capacity has peaked with expectations of overseas capacity withdrawal; on the demand side, real estate's marginal impact is slowing while photovoltaic and new energy vehicle demand remains strong, driving domestic apparent consumption to potentially maintain double-digit growth; on the export side, short-term external environmental shocks exist, but long-term prospects show China's cost advantages enabling continued overseas market share gains.
In summary, China's organic silicon DMC industry capacity utilization is expected to gradually improve from 67% in 2024 to 76%/83% in 2025/26, with supply-demand dynamics progressively improving. Combined with potential "anti-involution" measures catalyzing strong cost-side support, the industry is poised for a bottom reversal.
**Risk Warnings:** 1) Raw material price volatility risk; 2) Downstream demand falling short of expectations; 3) Macroeconomic and external environment volatility risk