China’s Methyl Silicone Oil Industry at a Crossroads: Export Tax Rebate Cancellation Forces High-End Pivot

[GUANGZHOU] — April 1, 2026, marks a watershed moment for China’s methyl silicone oil industry. The long-anticipated cancellation of the 13% export tax rebate for primary shaped polysiloxane — which includes methyl silicone oil, 107 adhesive, and vinyl silicone oil — has officially taken effect, fundamentally altering the economics of China’s silicone export business .

This policy shift, announced jointly by the Ministry of Finance and the State Taxation Administration, eliminates the VAT export rebate for these products effective April 1, 2026 . For the countless small and medium-sized exporters that have long relied on the 13% rebate to sustain razor-thin margins on commodity-grade silicone fluids, the impact is immediate and severe. Industry calculations show the move adds approximately RMB 1,600 per ton to export costs at current market prices .

“Many small factories survived on that 13% rebate. Now it’s gone — either they raise prices and lose orders, or they bleed cash,” admitted an export manager at a Guangdong-based silicone manufacturer.

The first quarter of 2026 did witness a “rush to export” phenomenon, as suppliers raced to ship orders ahead of the April 1 deadline, temporarily inflating export volumes . However, as the policy takes full effect, overseas buyers have turned cautious, and the market may face a demand “hangover” in the second quarter, putting downward pressure on prices.

Yet within this crisis lies a transformative opportunity. The tax rebate cancellation is, in essence, a strategic policy lever designed to redirect resources from low-value-added, homogenous competition toward high-tech, high-margin specialty segments .

“Low-end overcrowding, high-end scarcity” has long been the defining paradox of China’s methyl silicone oil market. While commodity-grade dimethyl silicone oil for textile treatment has descended into brutal price wars, premium segments — medical-grade, electronic-grade, and cosmetic-grade silicone oils — remain dominated by international giants like Dow, Wacker, and Shin-Etsu. These high-end products demand stringent specifications: ultra-low volatile cyclic content (D4/D5), metal ion purity below 1 ppm, and exceptional thermal stability.

Industry experts note that although China accounts for over 70% of global polysiloxane production capacity, the country still relies heavily on imports for high-purity methyl silicone oil. The removal of the export rebate will accelerate a long-overdue shakeout, forcing domestic players to invest in R&D and pivot toward low-cyclics, high-transparency, and high-stability specialty formulations.

“In the short term, this is a stress test. In the long term, it’s a necessary process of ‘good money driving out bad’,” an analyst at SCI99 commented. Only by breaking free from rebate dependency can China’s silicone industry evolve from a global “raw material workshop” into a creator of internationally competitive specialty brands . For methyl silicone oil producers, 2026 will be the year of reckoning — evolve up the value chain, or exit the market.