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China to boost silicone capacity significantly

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HOUSTON—Silicone capacity expansions in China are generating significant global oversupply that is impacting profitability and growth for producers worldwide, an IHS Chemical report has warned.

According to the “IHS Chemical Economics Handbook: Silicones” report, global demand for silicones will increase from 1.7 million metric tons in 2012 to 2.4 million metric tons in 2018, an annual average growth rate of nearly 6 percent over that span.

With nearly 40 percent of global silicone production capacity, China is the largest producer of silicones in the world. Capacity there includes several world-scale plants built as joint ventures with foreign companies such as Dow Corning Corp. and Wacker Chemie A.G.

China is expected to build additional capacity, equivalent to nearly 20 percent of the 2012 global demand through 2016, according to Aida Jebens, principal author of the IHS Chemical report and a specialty chemical analyst at IHS.

“That excess Chinese capacity threatens to destabilize the global silicones market,” he said. “Less profitable producers are at risk of rationalization and under-utilization, and excess capacity is going to cause prices to fall.”

According to IHS, further capacity additions are scheduled to come on stream in China through 2016. If all of these projects begin, China's share of the global capacity will rise to 50 percent by 2016. In contrast, no significant capacity additions occurred in the other regions in the last five years, and none is expected through 2016.

Silicones are becoming increasingly vital to the construction, cosmetics and medical/pharmaceutical industries, according to the study. They can be classified as fluids, elastomers or resins.

Jebens said silicone fluids will grow by 4 percent over the next four years, fueled by cosmetics, toiletries and medical applications. He said silicone elastomers will grow 7 percent because of the growing construction and automotive industries, while silicone resins will grow 3 percent.

China's consumption of silicones has grown 25 percent annually during the 2002-12 period, surpassing the U.S. and Western Europe. In 2012, China's share of the global market rose to 36 percent, while the U.S. and Western Europe declined to 17 and 23 percent, respectively.

“Despite this anticipated slowing in domestic demand for China, the country's impact on the global silicones market cannot be minimized,” Jebens said. “China is the most dominant player in the market, and any major shifts in either Chinese demand or production capacity will have significant implications for the global silicones market.

“The sheer volume of excess capacity being added to the market by China is already impacting the profitability and performance of global producers, and more capacity has yet to be added.”

Above average growth may occur in Central and Eastern Europe, Central and South America, and the Middle East and Africa. Consumption in North America and Western Europe is expected to increase between 3 and 3.5 percent per year. Japan's market will grow just slightly from 2012-18, the report said.