Analysis of the Ethylene Market in China   

By Qian Dan   

Remarkable capacity increase

The high crude oil price in the first half of 2008 and the financial crisis in the second half of the year suppressed the demand for ethylene. China produced 10.256 million tons in 2008, a slight drop of 2.1% from 2007.
   China has 23 ethylene production units. The biggest one is the 1.09 million t/a ethylene expansion unit in Shanghai Secco Petrochemical Company that went on stream in July 15th, 2009. (CCR2009, No22) The smallest one is the 140 000 t/a unit in Panjin Ethylene Co., Ltd. Technologies being used are mainly imported from abroad. The development of the ethylene industry in China has started to highlight the economies of scale in recent years. The construction of large-scale units has become a development trend. Ethylene units recently completed usually have a scale of 0.8 million-1.0 million t/a. The enterprise's ultimate goal for renovating old units is also 0.8 million-1.0 million t/a.
   Judging from the status of ethylene units for construction and expansion, it is expected that the capacity of ethylene in China will be more than 16.0 million t/a in 2010 and the self-sufficiency rate will be much higher at that time.

Domestic consumption  

In China ethylene is mainly used to produce PE (polyethylene), PVC (polyvinyl chloride), MEG (monoethylene glycol) and PS (polystyrene). The self-sufficiency rate of ethylene has been maintained at over 93.55% in recent years in terms of apparent consumption. However, in terms of equivalent consumption, the self-sufficiency rate is only 38%-44% and there is a considerable supply shortage. With the increase of the downstream demand, it is expected that the apparent demand for ethylene in China will reach 17.0 million-18.0 million tons in 2010 and 22.0 million tons in 2015.
    Based on the development of ethylene downstream derivatives, it is expected that in the equivalent consumption mix of ethylene in 2010 the proportion will be 56% for PE, 18.8% for MEG, 5.6% for PVC and 9.7% for styrene monomer. Owing to its rapid development, the proportion of HDPE (high density polyethylene) in the ethylene consumption mix will see a sustained increase and the consumption of ethylene will be 6.55 million tons in 2010. Styrene monomer will develop more slowly than PE and its proportion in the ethylene consumption mix will go down.

Risks in the development of the ethylene industry

(1) Reduction of output

China produced 10.256 million tons of ethylene in 2008, a drop of 2.1% from 2007. Such a situation was seldom seen in recent years. The output growth of major ethylene downstream products also reduced drastically. The output of plastic resins and copolymers was 31.30 million tons, a slight increase of 1.5% over 2007. The output of synthetic rubbers was 2.38 million tons, an increase of 9.2%. The output of synthetic fibers was 22.41 million tons, an increase of 3.0%. By contrast, the growth of these products was 15%-27% in 2007.
   Despite the output reduction of ethylene in China due to the global financial crisis, most of the ethylene projects planned for the Eleventh Five-year Program period (2006-2010) will start production during 2009-2010. It is therefore expected that the capacity of ethylene in China will increase remarkably at the end of the Eleventh Five-year Program period. The capacity growth will slow down after 2010 and the timing for the construction of ethylene projects and the timing for the start of production will be adjusted.

(2) Impacts from the Middle East's products

Oil producing countries in the Middle East have changed their development strategy in recent years. Pure dependence on the export of oil/gas resources has been shifted to upstream/downstream integrated development. As the region has a unique advantage in raw materials, considerable impacts on the global ethylene market will be produced. Due to the global financial crisis, some petrochemical projects in the Middle East have been postponed. Ethylene and downstream petrochemical products from the Middle East will however still have grave impacts on the Chinese market.

(3) Prominent hidden worries in the development of the ethylene industry

Ethylene units already completed in China almost cover the whole country. The unreasonable dispersion of ethylene units is unfavorable to the rational and effective utilization of utilities and resources and the control of pollutants. It also increases investments. Besides, although the localization rate of ethylene units in China has already reached around 70%, there is still a considerable technology gap compared with the most advanced countries. The reliability and the stability of equipment leave much room for improvement. The extent of specialization and serialization is quite low. The development of the equipment manufacturing sector lags behind the development of petrochemical technologies and cannot satisfy the need for large equipment. The ability for R&D in major equipment is weak and cannot meet the international requirements for the mechanical/electrical integration of petrochemical equipment.