Seeing the real state and direction of 2025: Moving Toward a More Rational 2026 - Structural Restructuring 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: "Hang in there a little longer and wait for the next market cycle."This judgment was not unfounded in the past. Whether it's rigid foam, soft foam, or elastomers and upstream raw materials, the industry has indeed completed several phase repairs through demand recovery or supply contraction.

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

Ruijie Consulting believes that it's not because the cycle itself has disappeared, but because the problems facing the industry are no longer just a single price cycle. Instead, there is a long-term restructuring brought about by simultaneous changes in supply structure, demand structure, and competitive methods. The cycle itself is insufficient 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 such as oxalic acid and BDO to polymers like rigid foam, flexible foam, spandex, and TPU, the most common market phenomenon over the past year has not been "disappearing demand," but rather a more subtle change with deeper impact.Demand still exists, but it is increasingly difficult to translate it into corporate profitability.

In the field of flexible foamThe demand related to home furnishings and automobiles has not plummeted, and certain niche markets still show resilience. However, companies generally face the issue that shipment volumes and production rates do not translate into corresponding profit improvements. Any increase in raw material costs is quickly reflected in the company's cost side, but the transmission of prices downstream is clearly obstructed. Companies can only maintain orders by offering discounts, extending payment terms, or compressing their own profit margins.

In the rigid foam fieldThe basic market for building insulation and cold chain applications still exists, but the combination of a slowdown in domestic demand and uncertainties in foreign trade has led to a noticeable decline in the stability and continuity of orders. Prices quickly plummet when costs fall, but lack sufficient rebound momentum when costs rise, causing the industry to operate in a low-profit margin range for an extended period.

In the direction of TPU and other elastomersThis contradiction is more typical. Demand has not disappeared, application scenarios are still expanding, but many companies have fallen into a state of being "busier but not more profitable." When product substitutability is high, customer switching costs are low, and the supply side continues to release homogeneous capacity, price competition quickly becomes the dominant mechanism, compressing profit margins.

In the upstream sectors of BDO, AA, and other raw materialsThe downward pressure on prices caused by supply-demand mismatch has magnified the problem in another way. Upstream prices that remain below reasonable economic levels not only weaken their own profitability but also continually transmit cost and price fluctuations downstream, exacerbating the uncertainty of the entire industry chain.

According to Ruijie Consulting's observation of the polyurethane industry chain from the supply side, a cross-category common 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, elastomers, or some raw materials, the new production capacity is highly similar in terms of technical routes, equipment configuration, and target markets. This homogenization leads to increased substitutability between products, while the space for enterprises to truly differentiate themselves is narrowing.

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

The distinction that needs to be made is that the issue is not the size itself, but the way the size 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 established advantage."

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

Changes in the structure of downstream industries have led to orders increasingly characterized by small batches, high frequency, short cycles, and differentiation. Companies need to switch formulas and processes more frequently and manage inventory and scheduling more precisely, which invisibly increases operational complexity and hidden costs.

In the flexible foam sector, the home furnishing end emphasizes a rich variety of SKUs and quick response, while the automotive end focuses on platform-based cost reduction and stable delivery. It is difficult for companies to maintain an advantage in both price and service simultaneously. In the coatings and adhesives sector, downstream customers are distributed across multiple industries such as construction, home appliances, packaging, automotive, and electronics, with significant differences in 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 customer.

The result of fragmentation is that industry resources remain heavily concentrated on easily replicable and substitutable general demands, while niche applications that truly have premium potential often require longer validation periods and higher organizational investment, making it difficult to absorb excess supply pressure in the short term. This is also why many companies swing back and forth between "intense competition in general materials and slow progress in high-end materials," yet consistently struggle to break out of the low-margin cycle.

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

When costs rise, companies are afraid of losing orders and thus hesitate to increase prices; when costs fall, downstream customers quickly push prices down to secure their profit margins. This "reluctance to rise, faster to fall" structure makes it increasingly difficult for prices to adjust supply and demand and restore 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 lead to temporary fluctuations, but as long as the supply-demand structure has not fundamentally changed, such fluctuations are unlikely to develop into a trend. If a company overly relies on short-term price rebounds for profit, its operational risks may actually increase.

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

In an environment of price competition and payment term games, the extension of accounts receivable cycles, increased inventory pressure, and expanded capital occupation have become common phenomena in multiple niche sectors. Even if companies maintain a slight profit on the income statement, they may continue to be under pressure on the cash flow front.

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

Shuai Jie Consulting believes that the risk for the industry does not come from "whether the production line stops," but rather from the coexistence of high-load operation and intense competition, where low gross margins and the bargaining over payment terms have been solidified into a normalized way of operating.When profit margins are continuously squeezed and capital occupation accumulates, the real pressure often does not come from a single phase of losses, but rather from the continuous erosion of cash flow and financial structure caused by long-term minimal profits or even invisible losses.

Consulting firm Shuai Jie believes that 2025 is not a year for the polyurethane industry to wait for a turnaround, but rather a cognitive inflection point.

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

Looking back from the last working day of 2025, it is clear that the polyurethane industry did not simply experience a downturn, but rather an essential and profound structural adjustment. It is this adjustment that has allowed the industry to gradually free itself from the path dependence on scale, market trends, and price rebounds, and begin to return to a competitive logic that is more aligned with the intrinsic nature of the material and its application value.

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

For companies that truly understand their position and are willing to make proactive choices, 2026 is not an amplification of uncertainty, but rather a starting point where direction gradually becomes clear and rules steadily stabilize. When the industry returns to rationality, opportunities no longer belong to the most aggressive participants, but to those companies that recognize reality, adjust their pace, and continuously accumulate capabilities.