Production cuts and price hikes can be used as a means to adjust market conditions, but overusing them may disrupt the industry's cooperative ecosystem...
Quarter by quarter, Wanhua Chemical’s revenue in the second quarter reached 50.9 billion yuan, a year-on-year increase of 11%, marking the first time the company’s quarterly revenue exceeded 50 billion yuan. In 2021, Wanhua Chemical’s annual revenue exceeded 100 billion yuan for the first time, and it has remained a member of the “100 billion revenue club” for three consecutive years. This year, it is expected to surpass the 200 billion revenue milestone.
In the first half of the year, Wanhua Chemical experienced “increased revenue but not increased profit.” Particularly in the second quarter, net profit was 4.01 billion yuan, an 11% year-on-year decrease, marking the lowest level since the fourth quarter of 2022. The company’s gross margin of 16.41% and net margin of 9.24% for the first half of the year were also the lowest in recent years.
Fluctuations in raw material prices were one of the main reasons for Wanhua Chemical’s increased revenue but decreased profit in the first half of the year. Wanhua Chemical mentioned in its announcement that the average market price of one of its main raw materials, benzene, reached 8,652 yuan/ton in the first half of this year, a 24.35% increase compared to the same period last year. At the same time, affected by fluctuations in international crude oil prices and insufficient downstream demand in the petrochemical industry, the slight recovery in the petrochemical industry, coupled with relatively low overall profit levels, also somewhat reduced the profitability of the company’s petrochemical products.
Although the company’s profitability has been volatile, a senior figure in the chemical industry stated that benzene, which had significant price fluctuations in the first half of the year, has now seen a price decline. Additionally, the second half of the year is traditionally a peak demand season for various chemical products. Supported by strong demand, the transmission of high raw material costs to downstream will be smoother, and product profitability is expected to gradually improve.
In July, the domestic pure benzene market experienced drastic price fluctuations, with the highest drop exceeding 1,000 yuan.
Wanhua Chemical's main businesses cover three sectors: polyurethanes, petrochemicals, and fine chemicals & new materials. Among them, petrochemicals is the company’s largest business sector, followed by polyurethanes. In its semi-annual report, Wanhua stated that global demand for polyurethanes continued to grow in the first half of this year, especially in markets such as refrigeration and automobiles, with improved investment demand in the overseas construction industry. Additionally, with the technical upgrade and capacity expansion of the company's Fujian MDI unit, the increase in effective capacity of TDI units, and the commissioning of new polyether units in Yantai, the company's main product sales volumes achieved year-on-year growth in the first half: revenue from polyurethane series products and petrochemical series products reached 35.455 billion yuan and 39.575 billion yuan respectively, up 8.19% and 9.53% year-on-year. In the first half of the year, the sales volume of the polyurethane segment reached 2.69 million tons, a year-on-year increase of 14%.
Wanhua Chemical's fine chemicals and new materials business is expected to further contribute to revenue in the second half of the year. In the first half of this year, Wanhua’s fine chemicals and new materials series products achieved revenue of 12.979 billion yuan, a year-on-year increase of 15.23%. The company stated in its semi-annual report that the commissioning of the bisphenol A project has further enhanced the market share and profitability of the company's PC industry chain. The expansion into emerging markets has also driven ADI sales growth. Additionally, the company’s 200,000-ton/year POE project has been commissioned, and the industrialization of emerging businesses such as citronellal and fragrances is progressing.
Fine chemicals have always been highly profitable products in the chemical industry. Products such as ADI and PC are important profit-generating products in Wanhua Chemical’s fine chemicals business. The commissioning of the bisphenol A project and the expansion of the ADI market will help to scale up the company's high-profit products. Moreover, as projects such as citronellal and the POE project gradually reach production capacity in the second half of the year, they will also contribute to the company’s incremental performance.
Wanhua Chemical's major projects put into production and business growth
In the first half of this year, the pressure on supply growth in China's chemical market has eased, with structural improvements in supply-demand balance, a gradual decrease in chemical product inventories, and steady price increases, leading to a slight improvement in overall profitability. Traditionally, the second half of the year is a peak season for chemicals. However, data from the transitional period in July suggest that market conditions have not improved compared to the first half of the year.
According to analysis by Zhuochuang Information, the domestic chemical market was weak and declining in July, with profitability at a low point in recent years. The average monthly price of the organic chemical index decreased by 1.24% compared to the previous month. Of the 50 major chemical products, 58.0% saw price increases while 40.0% experienced price declines. The proportion of major units operating at a loss was 64.58%, slightly up from the previous month. Demand remained weak, and cost pass-through was slow. The chemical product inventory index rose for three consecutive months in July, with most chemical products in a loss-making state. Companies have been producing based on sales, and in the short term, supply remains controllable while waiting for further demand recovery.
Looking ahead to August, oil prices are expected to rebound, which would benefit the chemical market from the cost side. Policies supporting steady demand growth will further stimulate consumption in industries such as automobiles and home appliances. Most industries will enter the stocking and inventory replenishment phase in mid to late August, providing some support for the demand side and showing a positive trend in fundamentals.
Currently, some chemical product prices are experiencing "production cuts" before the peak season arrives, with "preemptive price hikes" becoming a norm:
Since 2024, the chemical industry has frequently seen production cuts due to force majeure, maintenance, and even planned low-load operation restrictions to drive up product prices.
Industry insiders analyze that long-term capacity expansion and slowing demand growth have led to an oversupply in the market, frequent price wars, and squeezed profits for companies. In response to excess capacity, production cuts and restrictions are viewed as "effective measures" to manage the surplus. This has resulted in artificial control of sales and changes in market dynamics, with increasing acceptance of such pricing methods.
However, chemical companies cannot rely on this as a "magic bullet." When the upstream industry overly depends on this method to "boost prices," repeatedly raising prices, it becomes increasingly challenging to make downstream companies bear the costs. Statistics from the China Chemical Information Weekly show that while the industry's gross profit level slightly improved in the first half of the year and some upstream products saw enhanced benefits, the extent of downstream losses has widened.
In the first half of this year, the launch of some new chemical projects in China was delayed. The new annual production capacity for 24 major chemical products was 12.7 million tons, a 65% year-on-year decrease and a 36% drop compared to the 19.8 million tons added in the second half of 2023. The growth rate has clearly slowed down. In the second half of the year, it is expected that the domestic chemical market will see an additional 22.6 million tons of new capacity, accounting for 64% of the annual increase in domestic chemical market capacity. Of this, the third quarter is expected to add 6.9 million tons per year, with supply growth pressure mainly concentrated in the fourth quarter.
Currently, the chemical industry is entering a phase of capacity expansion and contraction. However, leading companies are still investing in or gradually launching a series of high-tech and high-precision projects. These projects are key to future profit growth in the industry. Recent updates on some projects are listed in the table below:
