Self-sufficiency Rate of Ethylene Increases Steadily

By John Zheng   
Ethylene is a basic raw material in the petrochemical industry.
Around 75% petrochemical products are produced from ethylene.
They mainly include important organic chemical products such as
PE (polyethylene), PVC (polyvinyl chloride), ethylene
oxide/mono ethylene glycol, dichloroethane, styrene, ethanol
and vinyl acetate.

Stable demand growth in the world

The capacity of ethylene in the world was around 120 million t/a
in 2005 and the output was around 110 million tons. The ethylene
production in the world is mainly distributed in North America,
the Asia-Pacific region and the Middle East. The capacity
proportion in these regions was 31.1%, 26.7% and 9.9%
respectively in 2005. Generally speaking, the ethylene
production in the world is quite concentrated and has high
admission threshold. Major producers include Dow Chemical,
Exxon Mobil, Shell, SABIC and BP.
   The consumption of ethylene in the world was around 108
million tons in 2005. Major consumption regions include North
America, the Asia-Pacific region and Europe. The Asia-Pacific
region is the largest ethylene consumption region in the world
and the consumption accounts for around 38% of the world total.
The ethylene production in the region can not meet the market
demand and great quantities of ethylene downstream products have
to be imported. The consumption of ethylene in the Middle East
is relatively small, only accounting for around 5% of the world
total. Great quantities of ethylene downstream products in the
Middle East are exported each year. The supply and the demand
of ethylene in Europe are basically balanced.
   Major consumption sectors for ethylene in the world include
PE, ethylene oxide/mono ethylene glycol, PVC, styrene and vinyl
acetate. The sector with the greatest consumption is PE. PVC
comes next. The consumption distribution in various regions of
the world is similar with no great difference.
   It is expected that the petrochemical industry in the world
will have a bright prospect in the next 10 years. The average
annual growth of the ethylene demand will reach 4.6% during
2005-2010 and 3.2% during 2010-2015. The market growth will be
mainly in the Asia-Pacific region and the product export will
mainly from the Middle East. It is expected that the demand of
ethylene in the world will reach 135 million tons in 2010 and
158 million tons in 2015. In spite of the rapid capacity
expansion in Asia, the market supply deficit of ethylene in the
region is expected to be around 15 million tons in 2010.

Rapid capacity expansion in China

The capacity of ethylene in China was around 7.78 million t/a
in 2005 and the output reached 7.555 million tons, an increase
of 20.6% over 2004. The operating rate was 97.1%, much higher
than the world average level and most producers had over-load
production.
   In 2006, the 800 thousand t/a ethylene unit in CNOOC Shell
Petrochemical Co., Ltd. started production (CCR2006, No. 6), the
capacity of ethylene in Sinopec Maoming Petrochemical Company
Ltd. was expanded from 360 thousand t/a to 1.0 million t/a
(CCR2006, No. 27) and the capacity of ethylene in CNPC Jilin
Petrochemical Company Ltd. was expanded from 380 thousand t/a
to 700 thousand t/a (CCR2006, No. 13). The capacity of ethylene
in China has reached 9.44 million t/a today.
   Due to the robust demand in the domestic market, the ethylene
production in China has increased rapidly in recent years. The
average annual growth of the ethylene output reached 9.9% during
2000-2005.

Huge market gap in China

The apparent consumption of ethylene in China was around 7.584
million tons in 2005, an increase of 20.3% over 2004 and the
equivalent consumption was 18.208 million tons, an increase of
4.5%. The average annual apparent consumption growth of ethylene
reached 9.6% from 2000 to 2005.
   As the ethylene production in China falls far short of the
market demand in downstream products, great quantities of
ethylene downstream products have to be imported each year. The
net import amount of ethylene downstream products in China was
16.914 million tons in 2005, equivalent to an ethylene
consumption of 10.624 million tons. The self-sufficiency rate
of ethylene in China is only 41.5% and there is therefore a huge
gap in the ethylene market.
   Major consumption sectors for ethylene in China include PE,
PVC, ethylene oxide/ethylene glycol and styrene. The import of
ethylene is mainly distributed in East China and North China for
the ethylene-process PVC production. East China and South China
are the major consumption and import regions of ethylene
downstream products. The import amount of ethylene downstream
products in these two regions accounts for more than 90% of the
national total.

Price trend closely related to crude oil price

The price of commodity ethylene is closely related to the crude
oil price. As the crude oil price has increased constantly in
recent years, the price of ethylene has hit the highest
historical record. During 2004-2005, in particular, the import
price of ethylene reached as high as RMB7 000 per ton. The profit
margin of downstream products such as PVC and PS reduced
drastically and their production and operation was put in a
difficult position.

Supply deficit gradually eased

The Chinese Government has approved Sinopec and CNPC to launch
6 new ethylene projects and the ethylene capacity in China will
therefore expand drastically. Three of these six projects are
to be executed by Sinopec. They are respectively located in
Tianjin, Quanzhou of Fujian province and Zhenhai of Zhejiang
province and their total capacity will reach 2.8 million t/a.
The project in Quanzhou will be jointly funded by Sinopec, Exxon
Mobil and Aramco of Saudi Arabia. The 1.0 million t/a ethylene
project in Tianjin already started construction in June 2006.
(CCR2006, No. 19) The other three ethylene projects are to be
executed by CNPC. They are located in Chengdu of Sichuan province,
Dushanzi of Xinjiang and Fushun of Liaoning province and their
total capacity will reach 2.8 million t/a. The 1.0 million t/a
project in CNPC Xinjiang Dushanzi Petrochemical Co., Ltd.
already started construction. (CCR2006, No. 22) The 500 thousand
t/a project in Shenyang Paraffin Chemical Co., Ltd. broke ground
on November 29th, 2005 and will complete and put on stream in
2008. (CCR2005, No. 35) If these projects can all start
production on schedule, the capacity of ethylene in China will
reach more than 15.5 million t/a in 2010.
   It is expected that the average annual growth of the ethylene
market demand in China will be 8.2% during 2005-2010. The market
demand of ethylene in China will reach 27 million tons in 2010
and the self-sufficiency rate will be around 57%. Great
quantities of ethylene downstream products will still have to
be imported, but the self-sufficiency rate of ethylene will
increase remarkably.

Major Ethylene Producers in China in 2005
  (thousand tons)
Producer                           Output
Sinopec Shanghai Petrochemical Co.     962
Sinopec Qilu Petrochemical Co.      825
Sinope