China’s Ethylene Capacity Expansion Continues

Nationwide ethylene capacity increased to 167 million t/a at the end of the first half of 2016, but production of high-end products is short of supply, according to an annual survey report released on November 25 by the China Ethylene Industry Association.
Petrochemical companies have enjoyed improved gross margins thanks to lower raw materials costs, as crude oil prices kept low. Still, domestic companies lagged western competitors in terms of diversifying feedstocks and using lightweight feedstocks for ethylene production. The domestic industry still heavily relies on naphtha and heavy tail oil for ethylene production.
In the future, the domestic industry is set to be hit on cost competitiveness by those ethylene plants using shale gas as feedstock in the U.S.
Imports of high-end chemical products increased over time, according to the three recent annual reports by the association. China imported 19.30 million tons of synthetic resins in 2015, up more than 10% from 2012’s 16.80 million tons. Imports of ethylene, propylene, ethylene glycol and other high-end products increased at least 7% over the same period of time.
Development in China’s ethylene industry has been a mixed one in the recent years in a fast-changing economic situation. Ethylene prices dropped fast in 2014 as competition intensified, demand for chemicals fell and the market got oversupplied. As a result, chemical companies saw gross margins squeezed, costs rise fast and profits fall. In 2015, as the global oil prices fell and China’s economy entered a new normal, costs of domestic chemical makers began to fall, leading to improved margins.
There remains an oversupply in refining capacity in China and a structural excess capacity in the chemical industry. While CNPC and Sinopec are capable of producing some kinds of high-end chemical products via innovation efforts, China still has to rely on imports for high-end chemicals to meet domestic demand.