China Securities Co., Ltd.: The profitability of VC and EC segments is expected to increase, focusing on resilient targets.

China Securities Co., Ltd. issued a research report stating that solvent and additive prices fell slightly in January and February. Recently, due to the rise in energy costs influenced by geopolitical factors in the Middle East, solvent prices on the petrochemical route have increased. The cost increase of EC and EMC has basically been passed on to downstream, while the profitability of DMC prepared by PO method has increased due to the rise in the price of propylene glycol, and the short-term profitability of VC and FEC has decreased. Considering supply and demand, China Securities Co., Ltd. believes that the EC and VC segments will be in a tight balance in 2026, and profitability is expected to further increase with the advent of the peak season. At the same time, companies producing DMC by the PO method are expected to gain excess profits due to the rise in the price of propylene glycol. The main points of China Securities Co., Ltd. are as follows: Considering supply and demand, the bank believes that the EC and VC segments will be in a tight balance in 2026, and profitability is expected to increase further with the arrival of the peak season. On the demand side: the new cycle of lithium batteries is becoming more clear, and the demand for energy storage is gradually becoming a reality. The bank expects global demand for lithium batteries to reach 3065GWh in 2026, a year-on-year increase of 34%, driving rapid growth in electrolyte demand. In the medium term, the bank expects overall demand for lithium batteries to maintain a year-on-year growth rate of 19-20% until 2030. On the supply side: in the solvent segment, the bank expects effective supply of EC/DMC/EMC to be 930,000/1,290,000/1,340,000 tons in 2026, with corresponding supply-demand ratios of about 106%/127%/162%. In the additive segment, the bank expects effective supply of VC/FEC to be about 110,000/50,000 tons in 2026, with corresponding supply-demand ratios of about 107%/118%. Fundamentals: Demand recovery combined with the rise in energy costs has pushed up solvent prices. In the fourth quarter of 2025, the demand for energy storage exploded, driving solvent and additive prices up. EC prices rose by nearly 2000 yuan/ton, an increase of 41%, while VC prices rose by 120,000 yuan/ton, an increase of 218%. In January and February of 2026, the industry experienced a slow season, coupled with the impact of industry hoarding due to the sharp price increase in December, causing solvent and additive prices to fall slightly. Since March, due to geopolitical factors in the Middle East, energy prices have continued to rise, driving up the prices of solvent products on the petrochemical route. Among them, EC prices rose from a low point of 5800 yuan/ton in early March to 7600 yuan/ton, an increase of 31%. Profitability: The cost increase of EC/EMC has basically been passed on to downstream, the profitability of DMC prepared by the PO method has significantly increased, and the short-term profitability of additives has decreased. 1) EC: Costs have been basically passed on to downstream. To produce one ton of EC, 0.52 tons of ethylene oxide is required, and for every 1000 yuan increase in the price of ethylene oxide, the production cost of EC increases by 520 yuan. The bank calculates that the current net profit after tax for one ton of EC is approximately 855 yuan, remaining basically unchanged from early March. 2) DMC: Profitability of PO method has significantly increased, while that of EO method has slightly decreased. PO method: The core raw materials are propylene oxide and methanol, and it can also produce the byproduct propylene glycol. The bank calculates that the current net profit after tax for one ton of DMC produced by the PO method is approximately 940 yuan, an increase of 700 yuan/ton compared to early March (mainly due to a rise of 4900 yuan/ton in propylene glycol prices). EO method: The core raw materials are ethylene oxide and methanol, and it can also produce the byproduct ethylene glycol. The bank calculates that the current net profit after tax for one ton of DMC produced by the EO method is approximately 425 yuan, a slight decrease from early March. 3) EMC: Costs have basically been passed on to downstream. The main raw materials for EMC are DMC and ethanol, and the bank calculates that the current net profit after tax for one ton of EMC is approximately 200 yuan, remaining basically unchanged from early March. 4) VC: Profitability has decreased due to the rise in EC prices. The core raw materials are EC, triethylamine, and DMC, and the bank calculates that the current net profit after tax for one ton of VC is approximately 62,000 yuan. 5) FEC: Profitability has decreased due to the rise in EC prices. The core raw materials are EC and potassium fluoride, and the bank calculates that the current net profit after tax for one ton of FEC is approximately 18,000 yuan. As lithium battery demand gradually recovers and with EC and VC in a tight balance throughout the year, the bank believes that the profitability of these two segments is expected to increase. At the same time, companies preparing DMC by the PO method are expected to gain excess profits due to the rise in propylene glycol prices.