See the real state and trend of 2025, move towards a more rational 2026 - structural reshaping and new starting point of the polyurethane industry

For a long time in the past, the polyurethane industry was accustomed to explaining everything in terms of cycles.

When prices are falling, profits are under pressure, and businesses are facing difficulties, the most common judgment within the industry is often: "Just hold on a little longer, and wait for the next market cycle."Historically, this judgment was not without basis. Whether it was hard foam, soft foam, or elastomers and upstream raw materials, the industry indeed completed stage repairs multiple times through demand recovery or supply contraction.

Looking back at 2025, this explanation is becoming increasingly untenable.

Rui Jie Consulting believes that the issue is not the disappearance of the cycle itself, but rather that the problems faced by the industry are no longer solely related to price cycles. Instead, they are due to simultaneous changes in supply structure, demand structure, and competition methods, leading to a long-term restructuring. The cycle itself is no longer sufficient to address structural issues.In this context, continuing to use "waiting for the market" to explain the current predicament may itself become a risk assessment.

From fine chemicals like oxalic acid and BDO to polymers such as rigid foam, flexible foam, spandex, and TPU, the most common market phenomenon over the past year has not been a "disappearance of demand," but rather a more subtle change with a deeper impact.Demand still exists, but it is increasingly difficult to convert it into business profitability.

In the field of soft foamThe demand related to home furnishings and automobiles has not plummeted, and some niche markets remain resilient. However, companies generally face the issue that shipment volumes and operating rates do not lead to corresponding profit improvements. Any increase in raw material costs is quickly reflected on the cost side for companies, but the transmission of price increases downstream is significantly hindered. Companies can only maintain orders by offering concessions, extending payment terms, or compressing their own profit margins.

In the field of rigid foamThe construction insulation and cold chain applications still have a fundamental base, but the slowdown in domestic demand combined with uncertainties in foreign trade have significantly reduced the stability and continuity of orders. Prices quickly plummet when costs drop but lack sufficient rebound momentum when costs rise, causing the industry to operate in a low-profit margin for a long time.

In the direction of TPU and other elastomersThe contradiction is more typical in this situation. Demand has not disappeared, and application scenarios are still expanding, but many companies are trapped in a state of "the busier they are, the less they earn." When product substitutability is strong, customer switching costs are low, and the supply side continuously releases homogeneous capacity, price competition quickly becomes the dominant mechanism, and profit margins are subsequently compressed.

In the upstream raw material segments such as BDO and AAThe downward pressure on prices caused by the mismatch between supply and demand has amplified this issue in another way. Upstream prices have long been below reasonable economic levels, not only weakening their own profitability but also continuously transmitting cost and price fluctuations to the midstream and downstream sectors, exacerbating the uncertainty of the entire industrial chain.

According to RateJ Consulting's observation of the supply side of the polyurethane industry chain, a common cross-category feature can be identified: the inertia of expansion still exists, but the degree of differentiation in supply is decreasing.

Whether it is soft foam, hard foam, or elastomers and some raw materials, the new production capacity is highly similar in terms of technological pathways, equipment configuration, and target markets. This homogeneity increases the substitutability between products, while the space for enterprises to truly differentiate themselves is shrinking.

In this structure, the market completes the competitive screening process in an exceptionally straightforward manner—price, payment terms, and delivery conditions become the primary competitive tools. When this mode of competition is continuously replicated and amplified, the stability of the industry's pricing system naturally declines, and companies' profits increasingly depend on short-term fluctuations rather than long-term capabilities.

The distinction that needs to be made is that the issue does not lie in the scale itself, but in the way the scale is utilized.In the current competitive environment, leading companies with integrated capabilities, cost control, and customer stability still find scale to be an important advantage.

For companies lacking differentiated positioning, simply expanding production capacity or maintaining high-load operations does not necessarily lead to improved profitability. Instead, it may amplify operational pressure in price competition. Scale is shifting from a "universal solution" to a "conditionally valid advantage."

Unlike the concentration on the supply side, the demand side is exhibiting more pronounced fragmentation characteristics. This change is particularly evident in areas closer to the end market, such as flexible foam, coatings, and adhesives.

The changes in the structure of downstream industries have led to orders increasingly exhibiting characteristics of small batches, high frequency, short cycles, and differentiation. Companies need to switch formulas and processes more frequently and manage inventory and production scheduling more meticulously, which invisibly increases operational complexity and hidden costs.

In the soft foam field, the home sector emphasizes a rich SKU and quick response, while the automotive sector emphasizes platform-based cost reduction and stable delivery. It is challenging for companies to maintain advantages in both price and service simultaneously. In the fields of coatings and adhesives, downstream customers are distributed across various industries such as construction, home appliances, packaging, automotive, and electronics, with significant differences in their requirements for performance, certification, and service. Even if companies maintain overall shipments, it is difficult to achieve concentrated profit release through a single product or a single client.

The result of fragmentation is that industry resources are still heavily concentrated on easily replicable and substitutable general needs. In contrast, niche applications that truly have premium potential often require longer validation periods and greater organizational investment, making it difficult to absorb the pressure of excess supply in the short term. This is also why many companies oscillate between "intense competition in general materials and slow progress in high-end materials," yet find it challenging to break free from the cycle of low profit margins.

From upstream raw materials to downstream products, Ruijie Consulting has identified an increasingly clear commonality:Prices are deviating from long-term value and cost logic, and are increasingly reflecting short-term speculation and emotional changes.

When costs rise, companies are afraid of losing orders and do not dare to increase prices; when costs fall, downstream customers quickly press for lower prices to secure their profit margins. This "hard to increase, quick to decrease" structure makes it increasingly difficult for prices to play a role in regulating supply and demand and restoring profits.

When the price mechanism fails, the market becomes highly sensitive to short-term events.Equipment maintenance, unexpected incidents, policy changes, and logistical disruptions can all trigger temporary fluctuations. However, as long as the supply and demand structure has not undergone fundamental changes, such fluctuations are unlikely to evolve into a trend market. If companies excessively rely on short-term price rebounds for profit, their operational risks will increase.

In 2025, another common risk that needs to be fully recognized is: cash flow pressure is becoming apparent earlier than profit pressure.

In an environment of price competition and credit term bargaining, extended accounts receivable cycles, increased inventory pressure, and expanded capital occupation have become common phenomena in several niche sectors. Even if companies maintain slight profits on the income statement, they may continue to face pressure on the cash flow front.

In an environment where overall supply is relatively abundant, the industry operates in an asymmetrical manner: leading companies and highly integrated facilities maintain high operating rates, while more companies are forced to repeatedly weigh between prices and cash flow.

Ruijie Consulting believes that for the industry, the risk does not come from "whether to stop production," but rather from the coexistence of high-load operation and fierce competition, where low profit margins and payment term negotiations have become a long-term normalized business practice.When profit margins are continuously squeezed and capital occupation accumulates, the real pressure often does not come from a single phase of loss, but rather from the ongoing erosion of cash flow and financial structure caused by long-term minimal profits or invisible losses.

Ruijie Consulting believes that 2025 will not be a year of waiting for a turnaround for the polyurethane industry, but rather a cognitive inflection point.

The industry has not come to an end, but the profit model that relied on scale expansion, cyclical fluctuations, and price rebounds in the past is systematically failing. The core theme of the industry's future will no longer be "overall recovery" but "structural differentiation."

Looking back from the last working day of 2025, it is clear that the polyurethane industry has not merely experienced a downturn, but rather a necessary and profound structural recalibration. It is this recalibration that has allowed the industry to gradually move away from relying on scale, market trends, and price rebounds, and start returning to a competitive logic that is more aligned with the inherent nature of materials and their application value.

Looking ahead to 2026, the confidence in the polyurethane industry does not stem from the certainty that the market will improve, but rather from a more significant change—the industry is relearning how to stably create value in a low volatility, low premium environment. Whether it's leading companies consolidating their core business through integration and scale advantages, or more companies repositioning their roles around niche applications, service capabilities, and cash flow security, a new competitive order is already taking shape.

For companies that truly understand their own position and are willing to make proactive choices, 2026 is not an amplification of uncertainty, but rather a starting point where directions become clearer and rules gradually stabilize. When the industry returns to rationality, opportunities often no longer belong to the most aggressive participants, but to those who see reality clearly, adjust their pace, and continuously accumulate capabilities.