After three years of price wars, the silicone industry will enter a structural adjustment window period in 2025. Through the triple drive of capacity clearing, technological upgrading, and policy guidance, the industry's profit margin has rebounded from -5% in 2024 to 8% in the second quarter of 2025. The market share of top enterprises has exceeded 65%, and market concentration has significantly increased.


Capacity clearance: Accelerated elimination of outdated production capacity
In the first half of 2025, the scale of production capacity withdrawal of organic silicon monomers in China will reach 320000 tons, equivalent to 8% of the total production capacity in 2024. Among them, Shandong Dongrun Organic Silicon went bankrupt and restructured due to debt crisis, and its 100000 tons/year monomer plant was acquired by Hesheng Silicon Industry; A small and medium-sized enterprise in Jiangsu was forced to shut down due to environmental non-compliance, releasing a production capacity target of 50000 tons per year. According to data from Baichuan Yingfu, as of August, the domestic production rate of organic silicon monomers remained at around 85%, an increase of 12 percentage points compared to the same period in 2024.


Technological Upgrade: Expanding Cost Advantage of Top Enterprises
During the industry downturn, technological investment becomes the key to enterprise differentiation. Hesheng Silicon Industry has reduced its comprehensive energy consumption to 12000 kWh/ton through the technology of "mining furnace waste heat power generation+siloxane closed-loop recovery", which is 20% lower than the industry average level; The "continuous hydrolysis process" developed by Xingfa Group has shortened the production cycle of 107 glue from 72 hours to 24 hours, and reduced the labor cost per ton by 40%. In the second quarter of 2025, the gross profit margin of Hesheng Silicon Industry reached 28%, which is 10 percentage points higher than the industry average.


Policy guidance: Establishment of industry self-discipline mechanism
In May 2025, the China Fluorosilicon Organic Materials Industry Association issued the "Self discipline Convention for the Organic Silicon Industry", which clearly prohibits behaviors such as selling below cost price and maliciously poaching technical personnel, and implements joint punishment for violators. At the same time, the Ministry of Industry and Information Technology will include organic silicon in the management scope of the "Implementation Measures for Capacity Replacement", requiring new projects to replace existing capacity by equal or reduced amounts. Under the policy combination, the planned new production capacity of the industry in 2025 will be reduced from 800000 tons/year to 500000 tons/year, effectively alleviating the pressure of oversupply.


Export market: structural optimization to enhance profitability
Against the backdrop of the withdrawal of overseas production capacity, China's organic silicon exports have shown a trend of "stable quantity and rising price". From January to July 2025, the export volume of DMC reached 280000 tons, a year-on-year increase of 5%, but the average export price increased from $1800/ton to $2200/ton, an increase of 22%. Among them, the proportion of exports to emerging markets such as India and Southeast Asia has increased to 45%, with high value-added silicone rubber and silicone oil as the main products, breaking away from dependence on low-end monomer exports.


Capital Market: Valuation Restoration in Progress
With the improvement of industry fundamentals, the capital market has re priced the organic silicon sector. As of September 10th, the dynamic price to earnings ratio (PE) of Hesheng Silicon Industry is 18 times, up three times from the low point in 2024; Xin'an Shares has a dividend yield of 4.5%, making it a preferred defensive allocation. CITIC Securities predicts that the net profit of the organic silicon industry will increase by 50% year-on-year in 2025, and the sector valuation is expected to recover to over 25 times PE.


Challenges still exist: be alert to the risk of demand falling short of expectations
Despite the current industry recovery, there is still uncertainty about the strength of downstream recovery. Affected by the decline in real estate investment, the demand for sealant in the construction industry decreased by 8% year-on-year from January to July 2025; Due to the global semiconductor cycle downturn, the growth rate of silicone resin usage in the electronics industry has slowed down to 10%. If overseas demand weakens in the fourth quarter, DMC prices may fall below 20000 yuan/ton, putting pressure on industry profits once again.