Fluorine chemical: profit generally declined, under the pressure to expand profit space

2023 is a stressful year for the fluorine chemical industry. Most companies are affected by raw material price fluctuations, new energy and other downstream growth than expected and other factors, the price of main products fell significantly, and the company's revenue declined to varying degrees. In this context, many companies have made it clear that they will consolidate their own advantages as the basis, adhere to the innovation route, strengthen the chain, complete product iteration, and expand the profit space under pressure by adjusting the domestic and foreign market layout.

General decline in profits 

From 2021 to 2023, the capacity utilization rate of enterprises above designated size in the fluorine chemical industry has declined for two consecutive years, and the total profit has declined for two consecutive years and the decline has expanded from the high growth in 2021. In 2023, the operating income profit margin of the fluorine chemical industry was 5.47%, lower than 6.8% in 2022 and 8% in 2021, which is relatively low in history.

When fluorine chemical listed companies sell goods or provide services, their cost increases more than the increase in sales, thus squeezing the profit space of enterprises. According to the annual reports of a number of listed companies, the gross profit margin on sales declined due to the greater impact of cost price fluctuations. The gross profit margin of the chemical sector of Juhua decreased by 6.63 percentage points year-on-year; Dongyue's gross profit margin decreased by 15.72 percentage points year-on-year; The gross profit margin of chemical sector of Sanmei shares decreased by 3.01 percentage points year-on-year; The gross profit margin of Tinci decreased by 12.05 percentage points year-on-year; The gross margin of new Capchem fell 3.1 percentage points year-on-year, and the gross margin of DFD products also declined as a whole.

Intensifying market competition 

The reasons for the profit decline of fluorine chemical listed companies mainly come from three aspects.

The first is the fluctuation of raw material prices. According to the information disclosed by Juhua, during the reporting period, the company was directly affected by the prices of products and raw materials, and the profit was reduced by 1.796 billion yuan. In addition to fluorite, which has a large year-on-year increase in mineral resource attributes, other raw materials are affected by the market pattern of "strong supply and weak demand", and the price has fallen significantly. Although the decline in the price of main raw materials increased the company's profit by 1.633 billion yuan, the sales price of the company's main products also decreased, resulting in a profit reduction of 3.429 billion yuan. Tinci’s annual report also shows that in addition to hydrofluoric acid and fluorite powder, the average price of Ethyl Methyl Carbonate, Ethylene carbonate(EC), Dimethyl carbonate (DMC) and other main raw materials in the second half of 2023 is lower than the first half of the year, which is an important reason for the decline in the company's electrolyte product prices and unit earnings.

Second, the problem of industrial overcapacity is prominent. Investment continues to maintain a high growth, superposition the original innovation ability is not strong and product technology bottleneck constraints, the current fluorine chemical industry homogeneous investment is obvious, a large amount of funds mainly invested in expanding production capacity, and structural optimization, high-end, differentiated direction of investment accounted for relatively small, bulk basic products and general materials overcapacity increased, resulting in product prices fell. According to the annual report of Juhua shares, the operating cost per 100 yuan in 2023 increased by 0.7 yuan compared with 2022, and on the contrary, the factory price of products has increased from two consecutive years to decline. Dongyue Group also said that due to the imbalance between production and demand, the price of Polyvinylidene difluorideproducts declined the most, affecting the company's overall profit.

In terms of fluorine refrigerants, the company pointed out that under the influence of the Kigali amendment to the Montreal Protocol, many enterprises expanded the production of HFC-125, HFC-32 and other hydrofluorocarbon (HFCs) products, and increased the market volume in order to obtain more quotas in the future, resulting in oversupply in the market, and the price of these products fell significantly. The operating rate of relevant enterprises has decreased, and the profits have declined sharply, which has adversely affected the business performance of enterprises.

Third, downstream demand is weak. In the past year, the fluorine chemical industry as a whole faced the problem of downstream demand growth that was not as expected. Tinci Materials and Capchem pointed out that due to the changes in the supply and demand pattern of the new energy automobile industry chain, the prices of the two companies' respective main products, electrolyte and battery chemicals, were significantly reduced from 2022, resulting in a decline in the company's overall revenue. DFD also mentioned that the company's new energy materials sector in 2023 revenue declined by 27.62%, although the new energy battery sector revenue achieved 31.97% growth, but the gross margin also declined.

A turnaround is in sight 

Despite the downward cycle, fluorine chemical companies are still actively taking action to try to reverse the decline. A number of securities companies pointed out that refrigerant quotas are still an important factor affecting corporate profits.

Juhua shares proposed that it will further consolidate its own advantages and strengthen its competitiveness. As the only leading enterprise with one to four generations of fluorine-containing refrigerant products in China, the company will accelerate the fourth generation of refrigerant technology upgrading and green low-carbon refrigerant new product innovation cultivation this year; At the same time, with the goal of building a first-class overseas base, support the development of the giant UAE base, and form the quota advantage of HFCs and international competitive advantage.

For the development of the downstream market this year, a number of fluorine chemical companies are optimistic, and pointed out that the industry concentration will be further improved, the layout of overseas business or will open up a new path of efficiency.

The new energy industry is gradually transforming from the explosive growth of the past to stable growth, and it is expected that the price of Lithium Hexafluorophosphate will gradually bid farewell to the period of skyrocketing and plunging, and enter a new stage of stable development. Tinci also predicts that with the saturation of the domestic electrolyte market and intensified competition, the future export of domestic electrolyte overseas will become a clear main line, and the export volume will gradually increase.

CAPCHEM said that the company's next step will be to consolidate and enhance its market position in the electrolyte industry, while constructing an integrated fine chemicals platform with lithium-ion battery electrolyte and fluorine chemicals as the core, and laying out production bases overseas to achieve localized supply of global resources.

Faced with the risks of product iteration and the Montreal Protocol and related amendments, the fluorine chemical industry will focus on scientific and technological innovation, carry out the research and development and industrialization of new products in new fields such as environmentally friendly refrigerants and blowing agents, fluoropolymers, fluorine fine chemicals, and take safe and environmentally friendly production as the winning core competitiveness.