1. Supply and demand imbalance: double squeeze of overcapacity and weak demand
Out of control capacity expansion: China, as the world's largest silicone producer, will have a DMC (dimethylcyclosiloxane mixture) capacity of 2.89 million tons in 2023, and leading companies are still planning new projects. However, the growth rate of downstream application fields has failed to match the pace of capacity release, resulting in a long-term oversupply in the market. Taking the photovoltaic field as an example, although the annual average growth rate of photovoltaic module production from 2021 to 2024 exceeded 40%, the growth rate of demand for supporting materials such as silicone sealants lagged, and the high industry inventory further aggravated the contradiction between supply and demand.

Structural shrinkage on the demand side: Traditional application fields such as construction and textiles have continued to shrink due to the decline in real estate and weak exports. Although emerging fields have maintained growth, it is difficult to digest excess capacity. For example, the demand for silicone thermal conductive materials for new energy vehicles has increased by 15% annually, but it accounts for less than 5% of the total demand, which is difficult to reverse the overall decline.

2. Cost pressure: raw material price fluctuations and profit margin compression
Upstream metal silicon price collapse: As the core raw material of silicone, the price of industrial silicon has continued to fall since 2023, and the average price in the first half of 2025 has dropped by 25% compared with the same period in 2024. On the surface, cost reduction should be good for enterprises, but in fact, due to weak demand, the price of silicone products has fallen more, resulting in further compression of the industry's profit margin. For example, the price of DMC fell from a peak of 60,000 yuan/ton in 2021 to 14,000 yuan/ton in mid-2025, a drop of 77%, while the price of metal silicon fell by only 55% during the same period.

Rising energy and environmental protection costs: Although the price of metal silicon has fallen, the energy consumption cost in the production process of silicone continues to rise due to stricter environmental protection policies. For example, enterprises in Xinjiang need to invest additional funds to build desulfurization and denitrification equipment, and the production cost per ton increases by about 800 yuan, further eroding profits.

3. International situation: trade barriers and geopolitical shocks
Export obstruction and intensified internal competition: The trade war launched by the Trump administration in 2025 caused China's silicone exports to fall by 10.29% year-on-year. The shrinking demand in overseas markets forced companies to turn to the domestic market, intensifying internal competition. At the same time, trade barriers such as the EU REACH regulations raised the threshold for product access. Some companies were forced to increase testing costs to meet standards, weakening price competitiveness.

Geopolitical disturbances in the supply chain: The conflict between Russia and Ukraine caused a surge in European energy prices, and some international silicone companies reduced production, but China's exports did not benefit from this. Instead, the overall demand was weak due to the decline in the global manufacturing PMI. In addition, although the recovery of Southeast Asian infrastructure and the rise of Indian electronics manufacturing provide new markets, it is difficult to make up for the demand gap in Europe and the United States in the short term.