Since the latter half of 2022, the carbon fiber industry has faced notable imbalances between supply and demand, leading to significant price declines and a downturn in financial performanceHowever, a turning point appears to be on the horizon as we approach the third quarter of 2024, with major publicly listed companies in the carbon fiber sector experiencing a resurgence in their performance, aided by a recovery in industry demandAs prices stabilize and new applications emerge, the sector is poised for long-term growth.

Recent financial reports have highlighted a stark reversal in fortunes for leading companies within the sectorThe quarterly results show that Guangwei Composites has achieved a revenue of CNY 746 million for Q3 2024, marking an impressive year-on-year increase of 42.63%. Following this, the net profit stood at CNY 247 million, which is up by 18.62%, while the adjusted net profit reached CNY 231 million, reflecting an astonishing growth of 89.74% year-on-year

Similarly, Zhongjian Technology reported a revenue of CNY 242 million in the same quarter, showcasing a staggering growth of 187.44% and a net profit increase of 254.2%.

Indicators of Recovery in Q3 Performance

In the reports released, Guangwei Composites revealed that for the first three quarters of 2024, total revenue amounted to CNY 1.902 billion, showing an 8.9% increase year-on-year, with net profit declining slightly by 1% to CNY 615 millionThe third quarter alone, however, showed a strong rebound with a revenue there of CNY 746 million, almost fully recovering from the earlier slumpGross margins also experienced an upward trend; in the first three quarters, Guangwei’s gross margin was recorded at 46.76%, an increase of 0.77 percentage points from last year, reaching as high as 50.04% in the third quarter alone.

Zhongjian Technology mirrored this upward trajectory, reporting a total revenue of CNY 533 million for the first three quarters of the year, up 33.26%, although net profit experienced a slight decline of 5.59% year-on-year

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Their exceptional third-quarter performance, with nearly a threefold increase in quarterly revenue, potentially marks a significant milestone for long-elusive demand recovery.

The preceding downturn in the carbon fiber industry originated from dramatic demand declines seen in various sectorsIn 2023, global demand for carbon fiber reinforced plastics (CFRPs) fell to 176,900 tons, a 15% drop compared to 207,700 tons in 2022. Overall revenue also saw a decline from $26.21 billion in 2022 to $22.96 billion in 2023. This diminished demand can be attributed primarily to a downturn in markets such as wind energy components and the sports and leisure sector, where carbon fiber consumption dipped by 42% and 22% respectively.

Despite the earlier setbacks, the financial performance report for Q3 indicates a revitalizing demand for carbon fiber products, primarily driven by the release of new product lines and projects such as the launch of a significant production facility in Baotou

This aligns with a sustained increase in the carbon beam segment which saw a revenue growth of over 20%. The combination of a growing customer base and expanding application fields within the sector rings positive for the future.

Guangwei Composites has recognized stable demand in its carbon fiber and energy new material divisions, contributing significantly to an overall sales figure of CNY 1.147 billion in Q3, alongside improvements in profitability as project deliveries ramp upDespite challenges facing other sectors of their business, including recreational and fishing gear applications, Guangwei remains committed to diversifying its production capabilities and exploring new market potentials.

Price Stabilization Amidst Market Flux

In tandem with recovering demand is the gradual stabilization of carbon fiber prices, which have been on a persistent decline since mid-2022. The combination of excess supply from production increases and an insufficient market to absorb this output has led to considerable price reductions

For example, the average price of carbon fiber in China stood at CNY 87.11/kg in Q3 2024, which marks a significant 21.3% decrease year-on-year.

Historically, prices peaked during the first half of 2021; however, since mid-2022, producers have had to navigate a challenging landscape of declining profitabilityAs the supply chain recovers, some companies have begun to increase pricing strategies, signaling a potential bottoming of carbon fiber prices.

Within this context, numerous institutions place the carbon fiber sector around the break-even point while still navigating a commercially difficult environmentProfitability continues to be impacted by the fluctuating prices of raw materials, particularly acrylonitrileRecent notifications suggest that price points may gradually strengthen, giving rise to consumer confidence in investment and maintenance of stabilized pricing.

Despite lower production numbers, the carbon fiber market reflects a growth trajectory, especially for domestically produced materials which are gaining market share due to improved competitive pricing and features

From 2015 to 2022, the demand for carbon fiber in China surged by an average growth rate of 23.7% annually, indicating a strong upward trend."

Moreover, further developments indicate that the carbon fiber industry is catering to more sectors, notably in the realms of energy generation, especially wind energy, as large-scale turbine blades require lightweight and high-strength materials for efficiencyHigh-performance carbon fiber significantly contributes to reducing weight in turbine structures, promoting reduced operational costs for renewable energy providers.

As wind energy continues to be a driving force in sustainable solutions, the demand for carbon fibers is poised for gradual increase as technologies advance and costs trek downwardAnalysts foresee a tipping point whereby carbon fiber prices could eventually fall within a range encouraging widespread adoption in mainstream industries, especially when prices stabilize around CNY 80/kg