CITIC Securities: Profitability in the VC and EC segments is expected to improve; focus on flexible targets

2026-03-30 08:48:16

Abstract generation in progress

Wen | Xu Lin Zhu Yue Xue Lu

The prices of solvents and additives fell somewhat in January and February. Recently, energy costs have risen due to geopolitical influences in the Middle East, driving up solvent prices along the petrochemical route. Our estimates show that the cost increases for EC and EMC have largely been passed on to downstream, while the profitability of DMC produced by the PO method has actually improved due to the rising price of the co-product propylene glycol, while the profitability of VC and FEC has decreased in the short term. Considering supply and demand, we believe that in 2026, the EC and VC segments will be in a state of tight balance, and with the arrival of the peak season, profitability for VC and EC is expected to further increase. At the same time, companies producing DMC via the PO method are expected to gain excess profits due to the rising price of the co-product propylene glycol.

Considering supply and demand, we believe that in 2026, the EC and VC segments will be in a state of tight balance, and with the arrival of the peak season, the profitability of VC/EC is expected to further increase. On the demand side: the new cycle for lithium batteries is becoming increasingly clear, and energy storage demand is gradually becoming a reality. We expect global lithium battery demand to reach 3065 GWh in 2026, a year-on-year increase of 34%, driving rapid growth in electrolyte demand. In the medium term, we expect that overall lithium battery demand will maintain a year-on-year growth rate of 19-20% until 2030. On the supply side: in the solvent segment, we estimate that effective supply for EC/DMC/EMC in 2026 will be 93/129/134 million tons, corresponding to supply-demand ratios of approximately 106%/127%/162%. In the additive segment, we estimate that effective supply for VC/FEC in 2026 will be about 11/5 million tons, corresponding to supply-demand ratios of approximately 107%/118%.

Fundamentals: The recovery in demand, combined with rising energy costs, has led to an increase in solvent prices. In Q4 of 2025, energy storage demand surged, driving up prices for solvents and additives, with EC rising nearly 2000 yuan/ton, an increase of 41%, and VC prices rising by 120,000 yuan/ton, an increase of up to 218%. In January and February of 2026, the off-season for the industry coupled with the price surge in December led to a decline in solvent and additive prices. Since March, due to geopolitical influences in the Middle East, energy prices have continued to rise, driving up the prices of solvent products along the petrochemical route. Notably, the price of EC increased from a low of 5800 yuan/ton at the beginning of March to 7600 yuan/ton, an increase of 31%.

Profitability: The cost increases for EC/EMC have largely been passed on to downstream, and the profitability of DMC produced via the PO route has significantly improved, while the short-term profitability of additives has decreased. 1) EC: Costs have largely been passed on to downstream. One ton of EC requires 0.52 tons of ethylene oxide, and for every 1000 yuan increase in ethylene oxide price, the production cost of EC increases by 520 yuan. Our calculations show that the current after-tax net profit per ton is approximately 855 yuan, which is basically unchanged from early March. 2) DMC: Profitability via the PO method has significantly increased, while the EO method has seen a slight decline. ① PO method: The core raw materials are propylene oxide and methanol, which also produce the co-product propylene glycol. We estimate that the current after-tax net profit per ton of DMC produced via the PO method is approximately 940 yuan, an increase of 700 yuan/ton compared to early March (mainly due to propylene glycol increasing by 4900 yuan/ton). ② EO method: The core raw materials are ethylene oxide and methanol, which also produce the co-product ethylene glycol. We estimate that the current after-tax net profit per ton of DMC produced via the EO method is approximately 425 yuan, showing a slight decline from early March. 3) EMC: Costs have largely been passed on to downstream. The main raw materials for EMC are DMC and ethanol; we estimate that the current after-tax net profit per ton of EMC is approximately 200 yuan, which is basically unchanged from early March. 4) VC: Profitability has decreased due to EC price increases. The core raw materials are EC, triethylamine, and DMC; we estimate that the current after-tax net profit per ton of VC is approximately 62,000 yuan. 5) FEC: Profitability has decreased due to EC price increases. The core raw materials are EC and potassium fluoride; we estimate that the current after-tax net profit per ton of FEC is approximately 18,000 yuan.

As lithium battery demand gradually recovers and both EC and VC are expected to remain in a state of tight balance throughout the year, we believe that the profitability of these two segments is likely to improve. Additionally, the DMC produced via the PO method is expected to gain excess profits due to the rising price of the co-product propylene glycol.

Downstream new energy vehicle production and sales are below expectations: Sales may be affected by macroeconomic factors that are less favorable than expected; production may be influenced by significant fluctuations in upstream raw material prices and high electricity costs, thereby affecting the profitability and valuation of the industry chain.
Raw material prices rise beyond expectations: Since 2021, raw material prices have continued to rise, while there have been significant fluctuations in raw material prices at times, and the high levels and instability of prices have had a certain impact on terminal demand and significantly affected the profitability of related companies in the industry chain.
Policy support is less than expected: Currently, some European countries provide corresponding subsidy support for the purchase of new energy vehicles. If subsequent policy support diminishes, it could lead to demand being released less than expected.
Impact of geopolitical escalation: If geopolitical crises in the Middle East escalate, energy costs will further increase, which will have a significant impact on the cost side of industry chain companies.

Securities Research Report Title: “Profitability of VC and EC Segments Expected to Improve, Focus on Elastic Targets”

Publication Date: March 29, 2026

Report Issuing Institution: CITIC Construction Investment Securities Co., Ltd.

Report Analysts:

Xu Lin SAC Number: S1440522110001

SFC Number: BVU271

Zhu Yue SAC Number: S1440521100008

SFC Number: BTM546

Xue Lu SAC Number: S1440525090001

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