There is resistance under pressure in the chemical market
The current chemical market is not experiencing a boom. While a few products like sulfuric acid, glyphosate, butadiene rubber, and soda ash have seen stable or slight price increases, the majority of chemical products remain sluggish, with some even facing declines. Last week, the National Bureau of Statistics released January data on industrial product prices, showing a 6.1% year-on-year increase in ex-factory prices for industrial goods, while the cost of raw materials, fuel, and power rose by 8.9%. Among chemical products, two out of three—polystyrene and polyester filaments—saw year-on-year declines, while cis-butadiene rubber was the only one to rise. On the input side, chemical raw material prices increased by 3.8%, marking the smallest rise among all sectors. The chemical industry is now under immense pressure, with rising costs threatening to push production expenses to unsustainable levels.
This year, several factors are driving up production costs in the chemical sector. First, energy and raw material prices have surged significantly. After oil prices broke above $100 per barrel in early January, they continued to climb, hitting record highs again in February. Domestically, coal supply has remained tight, especially during the Spring Festival when demand typically drops. However, this year saw an unusual coal shortage, leading to sharp price hikes. According to National Bureau of Statistics data, crude oil prices rose 29.9% year-on-year in January, while raw coal prices climbed 14.9%.
Second, environmental protection investments have also risen sharply. As a major polluter, the chemical industry is under stricter regulations. This year, mandatory clean production audits will be enforced, placing additional financial burdens on chemical firms. Meanwhile, labor costs have increased due to the new labor contract law, and transportation fees have also risen, further squeezing profit margins.
Despite these rising costs, it's proving difficult for chemical companies to pass them on to downstream industries. One key reason is government policy. In January, overall consumer prices rose 7.1% year-on-year—the highest in 11 years. To prevent inflation, the state has implemented strict price controls, making it harder for chemical firms to raise prices. The National Development and Reform Commission even issued warnings to nitrogen and phosphate fertilizer producers, effectively blocking any attempts to increase agrochemical prices.
Additionally, the rigidity of fuel and power prices has limited the ability of chemical companies to raise their own prices. For example, Baosteel’s iron ore negotiations in February resulted in a 65% price increase, raising concerns about the downstream impact. Many processing companies have limited capacity to absorb these cost increases, which could weaken their ability to handle rising chemical raw material costs.
Another challenge comes from shifting market demand. Over the past five years, fixed asset investment in chemicals has grown at over 30% annually, leading to the launch of numerous large projects. Some of these are now operational or nearing completion. Products that once required heavy imports, such as methanol, benzene, and aniline, are now domestically self-sufficient, putting downward pressure on prices. Notably, products like sulfur, sulfuric acid, and butadiene rubber, which have seen significant price increases, are largely consumed within the chemical industry itself.
In light of these challenges, chemical companies must take a proactive approach. They need to focus on internal improvements—such as structural adjustments, technological upgrades, and management innovations—to reduce raw material usage and energy consumption. By cutting costs and improving efficiency, they can better withstand rising pressures and avoid contributing to economic overheating or inflationary trends. It’s time for the industry to adapt and find sustainable growth in a tough environment.
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