Market Status and Challenges of the Fine Chemical Industry in 2024

I. Overview of the Fine Chemical Industry

1. Definition and Classification

Fine chemicals refer to the industry that produces fine chemicals, commonly known as the fine chemical industry. The products of this industry refer to chemical products with specific application functions, that are technology-intensive, commercially strong, and have high added value. Fine chemical products are diverse, with a wide range of downstream applications. Because some chemical products have multiple chemical properties such as stability, lubricity, film-forming properties, thickening properties, and anti-corrosion properties, they play an irreplaceable catalytic and auxiliary role in a certain link in the industrial chain of many industries.

Currently, fine chemicals in China can be roughly divided into eleven sub-categories: pesticides, dyes, pigments, reagents, and chemical pharmaceuticals (active pharmaceutical ingredients). With the development of the national economy, the development and application fields of fine chemicals are constantly expanding, and new categories will continue to emerge.

2. Industry Chain Analysis

The fine chemical industry includes fine chemicals and specialty chemicals. Unlike general and semi-general chemicals, which are bulk products, fine chemical products are characterized by small-scale production, currently relatively specialized application fields, and long and complex industrial chains. They are prepared through a series of chemical reactions from basic chemical raw materials, and the products are mainly used in the fields of medicine, pesticides, dyes, and liquid crystals.

The upstream industry is mainly the basic chemical industry, including inorganic chemical raw materials and organic chemical raw materials; the midstream includes two sub-sectors: chemical intermediates and chemical preparations. The former includes fine chemicals and specialty chemicals, while the latter includes fine chemical preparations and specialty chemical preparations; the downstream application scenarios mainly include application markets such as pharmaceuticals, pesticides, dyes, and daily chemicals.

The upstream of the fine chemical industry is mainly dominated by traditional petrochemical companies such as Sinopec, Enjie Share, and Rongsheng Petrochemical, with high market concentration and relatively stable supply; the midstream is composed of fine chemical manufacturing enterprises, with enhanced professionalism and high degree of segmentation, such as New H&C, which mainly operates in pharmaceutical fine chemicals, and Lianhua Technology, which mainly focuses on pesticide fine chemicals; the downstream industry is mainly composed of finished product operators, such as Procter & Gamble daily chemicals and Haoye Pharmaceuticals.

II. Development History of the Fine Chemical Industry

Fine chemicals are an important part of the petrochemical industry. The fine chemical industry in China started relatively late. The "8th Five-Year Plan" proposed to focus on the development of fine chemicals, the "9th Five-Year Plan" established fine chemicals as a key area for structural adjustment, while during the "12th Five-Year Plan" period, due to constraints on key technologies, the development of domestic fine chemicals and new materials was relatively slow. Based on this development background, the "12th Five-Year Plan" clearly pointed out that the fine chemical industry should actively innovate in technology and vigorously produce environmentally friendly products and high value-added chemical new materials to narrow the gap in technology level with developed countries.

During the "13th Five-Year Plan" period, the development theme of the fine chemical industry became centered around the transformation and upgrading of the petrochemical industry. Based on the existing industrial foundation of various provinces and cities, it aimed to build important national strategic petrochemical industrial bases, further expand the production scale of oil and gas processing, ethylene production, and new coal chemical industry, extend the industrial chain, and promote the coupled development of the petrochemical and coal chemical industries.

In the current "14th Five-Year Plan" period, according to the speech of the vice chairman of the China Petroleum and Chemical Industry Federation, high-quality development of the petrochemical industry and deepening of supply-side structural reforms should also focus on the adjustment and optimization of industrial structure and product structure, and should also focus on the high-end and differentiated development of products, and should continue to regard fine chemicals as a key area and important direction for the high-quality development of the petrochemical industry; as an important sub-sector of the petrochemical industry, the fine chemical industry is in a transition period from the initial and intermediate stages to fine chemicals, the proportion of traditional bulk general-purpose products will gradually decrease, and the development of high-tech and high-quality products is an important direction for the industry's development.

III. Policy Background of the Fine Chemical Industry

1. National Level

National-level policies for the fine chemical industry mainly include "Several Opinions on Accelerating the Development of China's New Materials Industry", "Guiding Opinions on Promoting the Healthy Development of China's New Materials Industry", etc. These policies are aimed at promoting technological innovation, product upgrading, industrial agglomeration, and market expansion in the fine chemical industry, and improving the industry's international competitiveness.

2. Local Level

Local-level policies for the fine chemical industry mainly include relevant plans and support measures formulated by various provinces and cities based on their own industrial foundation and regional advantages, such as Jiangsu Province's "Implementation Opinions on Accelerating the Development of the New Materials Industry", Zhejiang Province's "Implementation Opinions on Accelerating the Development of the New Materials Industry", and Shandong Province's "Implementation Opinions on Accelerating the Development of the New Materials Industry", etc. These policies are aimed at guiding and supporting the development of the fine chemical industry in their respective regions, creating distinctive advantages and regional brands.

IV. Analysis of the Current Status of the Fine Chemical Industry

1. Market Size

In 2022, the total output value of China's fine chemical industry was approximately 5.7 trillion yuan, a year-on-year increase of 16.3%, accounting for 43.7% of the total output value of the chemical industry. In 2023, with the recovery of the domestic and international economies and the increase in demand for fine chemical products, China's fine chemical industry maintained a relatively rapid growth momentum. The total output value is expected to reach 6.1 trillion yuan for the whole year, a year-on-year increase of 7%, and the proportion of the total output value of the chemical industry will increase to 44.2%.

From 2023 to 2027, China's fine chemical industry will maintain an average annual growth rate of around 10%. By 2027, the total output value of China's fine chemical industry is expected to exceed 11 trillion yuan.

2. Sub-markets

China's fine chemical industry covers multiple sub-markets, the most important of which include pharmaceutical raw materials, pesticide raw materials, dyes and pigments, food additives, and coatings. Pharmaceutical raw materials, pesticide raw materials, dyes and pigments, food additives, and coatings are five important sub-markets. The estimated output of pharmaceutical raw materials for the whole year of 2023 may reach 3.1 million tons, an increase of 1.6% compared to 2019. The output of pesticide raw materials may reach 2.4 million tons, an increase of 6.5% compared to 2019. The output of dyes and pigments may reach 1.4 million tons, an increase of 6.5% compared to 2019. The output of food additives may reach 1.5 million tons, an increase of 6.7% compared to 2019. The output of coatings may reach 26 million tons, an increase of 10.2% compared to 2019.

From the perspective of changes in the output of sub-markets, the output of pharmaceutical raw materials, food additives, and coatings shows a steady growth trend, while the output of pesticide raw materials and dyes and pigments shows a downward trend. This is related to factors such as domestic and international market demand, environmental protection policies, and technological levels.

3. Competitive Landscape

China's fine chemical industry has a relatively fragmented competitive landscape, with no single industry leader. In 2022, there were 28,500 enterprises above designated size in China's fine chemical industry. Among them, more than 400 enterprises had an annual output value exceeding 10 billion yuan, accounting for less than 1.5%. In 2023, affected by the national "dual carbon" goals and supply-side structural reforms, the number of enterprises above designated size in China's fine chemical industry is expected to decrease to around 27,000, with more than 350 enterprises having an annual output value exceeding 10 billion yuan, accounting for less than 1.3%. In the first quarter of 2023, there were about 26,000 enterprises above designated size in China's fine chemical industry, with more than 300 enterprises having an annual output value exceeding 10 billion yuan, accounting for less than 1.2%.

From the perspective of market segments, the pharmaceutical raw materials market has a relatively concentrated competitive landscape, with the top ten enterprises accounting for more than 30% of the market share, including Xinhecheng, Huadong Medicine, and HaiZheng Pharma; the pesticide raw materials market has a relatively fragmented competitive landscape, with the top ten enterprises accounting for less than 20% of the market share, including Lianhua Technology, Huadong Medicine, and Nanjing Chemical Fiber; the dye and pigment market has a relatively concentrated competitive landscape, with the top ten enterprises accounting for more than 40% of the market share, including Qixiang Tengda, Tiansci Materials, and Yongtai Technology; the food additive market has a relatively fragmented competitive landscape, with the top ten enterprises accounting for less than 10% of the market share, including Fujian Straits, Dalian Institute of Chemical Physics, and Juhua Group; the coatings market has a relatively concentrated competitive landscape, with the top ten enterprises accounting for more than 50% of the market share, including Saiwei Technology, Carboline, and an American paint company.