Prices for solvents and additives declined in January and February. Recent geopolitical tensions in the Middle East have driven up energy costs, subsequently increasing the prices of solvents produced via the petrochemical route. Cost increases for EC and EMC have largely been passed through to downstream customers. For DMC produced via the propylene oxide (PO) method, profitability has actually improved due to rising prices of the co-product, propylene glycol. In the short term, profitability for VC and FEC has seen a slight decrease.
Based on supply and demand dynamics, China Securities believes the EC and VC segments will be in a tight balance by 2026. With the peak season approaching, profitability for VC and EC is expected to improve further. Meanwhile, companies producing DMC via the PO method are likely to achieve excess profits due to the price increase of co-product propylene glycol. The key points from the analysis are as follows.
Combining supply and demand factors, the firm anticipates the EC and VC segments will be in a tight balance in 2026. The arrival of the peak season is expected to further enhance the profitability of VC and EC.
On the demand side, a new cycle for lithium batteries is becoming increasingly clear, and demand from the energy storage sector is materializing. Global demand for lithium batteries is projected to reach 3,065 GWh in 2026, a year-on-year increase of 34%, driving rapid growth in electrolyte demand. In the medium term, overall lithium battery demand is expected to maintain a compound annual growth rate of 19-20% through 2030.
On the supply side, for solvents, effective supply of EC, DMC, and EMC in 2026 is forecast at 930,000 tons, 1.29 million tons, and 1.34 million tons, respectively, corresponding to supply-demand ratios of approximately 106%, 127%, and 162%. For additives, effective supply of VC and FEC in 2026 is estimated at approximately 110,000 tons and 50,000 tons, respectively, with supply-demand ratios of about 107% and 118%.
Fundamentally, demand recovery coupled with rising energy costs is pushing solvent prices higher. A surge in energy storage demand in Q4 2025 drove up prices for solvents and additives, with EC rising by nearly 2,000 yuan per ton (a 41% increase) and VC prices increasing by 120,000 yuan per ton (a 218% surge). Prices for solvents and additives retreated in January and February 2026 due to seasonal weakness and the impact of industry inventory buildup following the price spike in December. Since March, ongoing geopolitical tensions in the Middle East have caused energy prices to climb steadily, leading to price increases for solvent products derived from the petrochemical route. Specifically, the price of EC has risen from a low of 5,800 yuan per ton in early March to 7,600 yuan per ton, a gain of 31%.
Regarding profitability, cost increases for EC and EMC have been largely passed downstream. Profitability for DMC produced via the PO route has improved significantly, while additive profitability has decreased slightly in the short term.
1) EC: Costs have been mostly passed through. Producing one ton of EC consumes 0.52 tons of ethylene oxide. A 1,000 yuan increase in the price of ethylene oxide raises the production cost of EC by 520 yuan. The firm calculates the current post-tax net profit per ton is approximately 855 yuan, remaining largely unchanged from early March. 2) DMC: Profitability for the PO method has improved markedly, while the ethylene oxide (EO) method has seen a slight decline. a) PO Method: Core raw materials are propylene oxide and methanol, with propylene glycol as a co-product. The current estimated post-tax net profit per ton of DMC produced via the PO method is approximately 940 yuan, an increase of 700 yuan per ton compared to early March (primarily due to a 4,900 yuan per ton rise in propylene glycol prices). b) EO Method: Core raw materials are ethylene oxide and methanol, with ethylene glycol as a co-product. The current estimated post-tax net profit per ton of DMC produced via the EO method is approximately 425 yuan, showing a slight decrease from early March. 3) EMC: Costs have been largely passed through. The main raw materials for EMC are DMC and ethanol. The current estimated post-tax net profit per ton of EMC is approximately 200 yuan, remaining stable compared to early March. 4) VC: Profitability has decreased due to rising EC prices. Core raw materials are EC, triethylamine, and DMC. The current estimated post-tax net profit per ton of VC is approximately 62,000 yuan. 5) FEC: Profitability has decreased due to rising EC prices. Core raw materials are EC and potassium fluoride. The current estimated post-tax net profit per ton of FEC is approximately 18,000 yuan.
With lithium battery demand gradually recovering and both the EC and VC segments expected to remain in a tight balance throughout the year, the firm believes profitability in these areas is poised to increase. Additionally, producers of DMC using the PO method are positioned to capture excess profits driven by the price appreciation of the co-product, propylene glycol.
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