Silicone cost support declines, while operating rates are expected to remain high [SMM Analysis]

SMM News on June 16: According to SMM, the mainstream transaction prices of DMC in China fell to around 10,700 yuan/mt this week. Monomer enterprises in east China quoted prices at 10,500 yuan/mt this week, a decrease of 800 yuan/mt WoW. The market's low prices approached the 10,000 yuan/mt mark. However, under the current cost support, the willingness of monomer enterprises to lower prices has slightly decreased.

Figure: Price Trend of Silicone Products

It has been a week since monomer enterprises in China lowered their quotes last week. This week, as they entered the market, market activity remained relatively lackluster. However, the willingness to sell among monomer enterprises was high. SMM has learned that there are two main reasons for the significant drop in silicone DMC prices. Firstly, cost support has plummeted. In terms of silicon metal, the price of 421 silicon used in silicone has continued to fall, with some monomer enterprises purchasing at prices below 8,500 yuan/mt, resulting in a significant decrease in costs. Secondly, monomer enterprises in the silicone industry have been increasing their operating rates recently. Maintenance of monomer plants in the southwest and east China regions has concluded, and maintenance facilities in the north China region are expected to resume operations soon. The operating rate of the silicone monomer industry is anticipated to approach 70%. However, on the demand side, overall performance has been poor. Demand in the construction sector has weakened due to high temperatures. In overseas markets, the stimulus from reduced trade war tariffs has been limited, and demand in the high-temperature adhesive sector has returned to rigid levels. Therefore, under the combined impact of weakening costs and a supply-demand mismatch, DMC prices have fallen significantly.

Regarding future prices, SMM believes that DMC prices will remain fluctuating at lows in the short term. On the one hand, the current low prices in the DMC market have fallen to the cost line of enterprises. On the other hand, monomer enterprises currently have acceptable inventory pressure. Therefore, the overall transaction prices will mainly fluctuate at lows.