The recent explosion at a chemical plant in Shandong has raised significant concerns about potential risks in the supply chain and has emphasized the urgent need for new material alternatives.

On July 20, 2025, at 13:50, a massive fire suddenly broke out at the Phase III organic silicon plant of Dongyue Group in Zibo. Although the fire was extinguished the same day with no casualties, a capacity of 300 ktpa organic silicon monomers was wiped out in the incident, equivalent to 7.5%-10.4% of China’s total capacity. It caused the price of DMC, a main raw material, to surge from CNY 10,700/tonne to CNY 12,000/tonne the next day, a single-day increase of 9%.

Just eight days earlier, Covestro declared force majeure on polyether polyol due to a fire in an external transformer station at Chempark Dormagen.

1. The Butterfly Effect: Dual Blow to the Industry Chain

The explosion occurred only 20 days after China’s 24^th National Safety Production Month, during which the company had prominently held meetings to demonstrate its commitment to safety. This accident revealed the systemic risks of highly concentrated capacity in the chemical industry.

Dongyue Group, the second-largest organic silicon producer in China with a 12% market share, had half of its 600 ktpa monomer capacity halted by this accident. More severely, the global organic silicon supply is facing severe contraction. On July 7, Dow Chemical announced the closure of its 145 ktpa DMC facility in Barry, U.K. Under the dual blow, DMC inventories in China are declining to low levels. Suppliers such as Luxi Chemical and Wynca Group have collectively suspended offerings, fueling bullish market sentiment.

For the polyether polyol industry, the incidents at Dongyue and Covestro have created a dual impact of supply chain disruption and demand shift. On one hand, Covestro’s force majeure event resulted in tightening global polyether polyol supply, creating opportunities for Chinese companies to grab more orders, although fully compensating for capacity shortfall in the short term remains challenging. On the other hand, since organic silicon is an important modifier for polyurethane (a downstream product of polyether polyol), its supply tightness may push polyurethane producers to adapt formulations, such as optimizing performance indicators (e.g. weather resistance), or explore other alternative materials.

2. Supply Chain Test: Triple Threats in the Polyether Polyol Industry

Cost pressure is emerging. DMC is the main material for producing silicone resin, which is widely used in building coatings. The 9% surge in DMC price has increased production costs for coating manufacturers by nearly 10%.

Supply shortages are reshaping the competitive landscape. Nearly 15% of global polyether polyol supply was disrupted due to Covestro’s incident, triggering production transfers and offering more opportunities to other counterparts. However, the shortage of organic silicon caused by Dongyue’s accident may suppress demand for polyol-based modifiers in fields such as building coatings.

Safety regulations are tightening. Dongyue Group’s accident occurred shortly after a deadly explosion at a leading pesticide producer in Shandong, which is expected to urge authorities to toughen safety regulations. Chemical producers may experience more frequent shutdowns and maintenance activities and face challenges in terms of supply flexibility. Meanwhile, strengthening policies may accelerate the exit of small and medium-sized producers.

3. Technological Breakthrough: New Opportunities from Industry Chains Coupling

Technological innovation is accelerating in response to the crisis. To balance performance and cost, silicon-modified polyurethane composites are becoming a breakthrough point. Silicon polyol copolymers and similar materials combine the flexibility of polyether polyol and the weather resistance of organic silicon, with expanded applications in fields such as battery sealing and medical devices.

Dongyue Group is eyeing on these value-added sectors since it previously launched a 200 ktpa organic silicon and downstream derivatives project. The accident may compel downstream manufacturers to accelerate the development of alternative formulations and promote upgrades in deep-processing technologies. Global supply restructuring creates export opportunities. Against the backdrop of overseas supply shrinkage, Chinese polyether polyol producers are poised to seize opportunities due to cost advantages. China’s organic silicon exports saw a 34% increase in 2024, and the polyether polyol industry is expected to follow a similar path.

Chinese exporters will face challenges such as the EU’s climate policies, which will help improve their green production levels. The 2025 Organic Silicon Industry Standards require that unit energy consumption of standard coal in new projects is no more than 1.2 tonnes, raising entry thresholds further.

4. Future Landscapes: Balancing Risks and Opportunities

Table: DMC Price Trend and Influencing Factors

The impact of Dongyue Group’s accident on the polyether polyol industry shows temporal variations.

In the short term (1-3 months), the industry faces dual pressures of rising costs and volatile demand. If the shortage persists, DMC prices are expected to continue rising by 5%-8%, further eroding profit margins for downstream manufacturers.

In the mid-to-long term, there may be three major trends in the industry: development of high-performance composite materials, global capacity layout, and vertical integration of supply chain. Companies with integrated advantages are likely to enhance resilience through capacity allocation and supply chain optimization.

Conclusion

Going forward, Chinese chemical producers will gain clearer insight into the challenges posed by persistent overcapacity and intermittent supply disruptions. Dongyue Group’s fire accident has highlighted the potential risks of high industrial concentration, while accelerating the process of technological improvement and global layouts. The polyether polyol sector is expected to experience some fluctuations in the near term. In the longer run, enterprises that ambitiously advance technology upgrades and enhance supply chain resilience are set to thrive in the ever-changing market. In the new materials field, enterprises’ core competitive edge increasingly depends on technological accumulation and robust supply chains.