By Zhao Wenming, China National Petroleum & Chemical Planning Institute
Supply and demand both on rapid increase
China’s polyethylene (PE) and polypropylene (PP) industries posted robust growth momentum in 2020. Spiked downstream demand for pandemic-prevention supplies and overseas orders further widened the supply gap. Domestic polyolefin production, consumption and imports all hit record highs. Table 1 shows the newly started up polyolefin plants in China during 2020.
By the end of 2020, domestic PE capacity reached 22 700 kt/a, with output at 20 320kt, up by 20.1% and 13.3% year on year, respectively. China’s apparent PE consumption stood at 38 600 kt, up by 12.5% year on year and the supply gap widened further, with imports at 18 530 kt and exports at 250 kt, while net import volume rose by 11.6% year on year. Domestic PP capacity amounted to 32 200 kt/a, with output at 26 500 kt, up by 15.0% and 14.2% year on year, respectively. China’s apparent PP consumption reached 32 630 kt, up by 16.5% year on year and imports were 6 560 kt, with exports at 430 kt and net import volume increased by 27.3% year on year. Figure 1 and Figure 2 show China’s PE and PP supply-demand situations.
Figure 1 China’s PE supply-demand
Figure 2 China PP supply-demand
During the “13th Five-Year Plan” period, China’s PE capacity, output and apparent consumption registered an average annual growth rate of 8.5%, 8.0% and 10.5%, respectively and that for PP stood at 10.1%, 9.9% and 9.0%, respectively.
Demand growth to fall back to medium-to-low pace
Despite the stable-to-slower GDP growth during the “13th Five-Year Plan” period, China’s apparent consumption volume of polyolefin logged in stronger-than-expected increases, on the back of the recovering demand from the traditional downstream industries and several other factors.
First, the supervision and control policy on waste plastics imports has been upgraded. In July 2017, the General Office of China’s State Council issued the "Implementation Plan for Prohibiting the Entry of Foreign Wastes to Promote the Reform of the Solid Waste Import Management System", which proposed the ban of importing waste plastics for the source of living by the end of 2017 and the ban of importing industrial waste plastics in 2019. Affected by the policy, the downstream market share of imported recycled materials has been replaced by virgin materials.
Second, domestic output of recycled materials fell dramatically. Stricter environmental protection policies and overall low global oil prices during the “13th Five-Year Plan” period sharply narrowed the price gap between virgin and recycled materials. This triggered a significant decline in domestic production of recycled materials, and thereby shoring up the demand for virgin materials.
Third, the e-commerce industry became a hotspot for polyolefin demand. China’s express delivery volume surged to 83.4 billion in 2020 from 20.7 billion in 2015, posting an average annual growth rate of up to 32.1% during the period. Online catering takeaway order volume soared to above 17 billion in 2020 from 1.7 billion in 2015, with an average annual growth rate of over 58.5%. PE and PP are widely used in express packaging and cushioning materials, disposable tableware and packaging materials for takeaway. Currently, express delivery and takeaway industries consume more than 3 000 kt of polyolefin annually, including nearly 2 000 kt of PE and over 1 000 kt of PP.
Fourth, the public heath emergencies in 2020 spurred explosive demand growth. China’s apparent PE and PP consumption sustained a 4-5% year-on-year growth, driven by demand for protective equipment and packaging materials amid the outbreak of the COVID-19 pandemic.
In terms of sustainability, the policy of banning waste plastics imports no longer generates incremental demand after 2018. The implementation of plastic pollution prevention and treatment policy will promote the improvement of waste plastics recycling and utilization, which is likely to push up the output of recycled materials. The express delivery and takeaway markets may keep a rapid growth pace, but polyolefins will gradually be substituted by degradable plastics and other materials under the impact of the restricted use of waste plastics and the plastics ban. With the pandemic gradually taken under control globally, the short-term support to domestic polyolefin demand will peter out. During the “14th Five-Year Plan” period, China’s polyolefin consumption will continue to rise but the growth pace is expected to return to a level similar to or a bit weaker than the economic growth rate.
Phased, structural overcapacity risks emerge
China’s olefin industry has entered the new round of capacity boom since 2019. Additional domestic ethylene and propylene capacity will exceed 23 000 kt and 28 000 kt, respectively during the “14th Five-Year Plan” period. Most of the new olefin projects are equipped with downstream polyolefin plants and therefore, the “14th Five-Year Plan” period will also see intensive release of new polyolefin capacities in China.
Domestic PE capacity is expected to surpass 37 000 kt/a by the end of 2025 and PP capacity will total over 47 000 kt/a, with their average annual growth rate at above 10% and 8%, respectively during the “14th Five-Year Plan” period, far outpacing the demand growth. The oversupply pressure will come out gradually.
The domestic PE supply gap will remain in place for a longer period of time, but global ethylene and PE supply is relatively ample. PE products, yielded by lower-cost ethylene from ethane crackers in the Middle East and North America will continue to flood the China market. Global PP supply is relatively tight and pressure is mainly from the surplus capacity under the development of diversified production processes in China.
Phased and structural overcapacity risks will gradually emerge and the competitiveness of major market players will differentiate during the “14th Five-Year Plan” period, with new domestic polyolefin capacities coming on stream in succession. Upstream raw materials for most of the new capacities are dominated by large-sized refining and chemical integrated, light hydrocarbon cracking and PDH routes, mainly located in the eastern coastal petrochemical bases and parks, with private and foreign investment being the main investment force.
High-end and differentiation become the key to high-quality development
The “Development Guide for New Materials Industry” and the “Implementation Plan for Industrialization of Key New Materials Technologies” issued during the “13th Five-Year Plan” period clearly proposed China’s support of metallocene PE and other high-end polyolefin products development. High-end polyolefins have unique application performances and high technical barriers but boast relatively stable margins ensured by high prices and small volatility. The homogenization competition between general-purpose materials and medium/low-end special materials will be very fierce, and high-end products will become an important direction for enterprises to seek breakthroughs and achieve sustainable development.
As for the current domestic high-end polyolefin market, metallocene polyolefin, especially metallocene PE has attracted the greatest attention. Domestic demand for metallocene PE is nearly 1 000 kt, mainly used in PE-RT pipes, high-performance films, large blow moulding/rotational moulding and other fields. While domestic supply is below 200 kt. Apart from Qilu Petrochemical, Daqing Petrochemical, Shenyang Chemical and Dushanzi Petrochemical, Yangzi Petrochemical, Maoming Petrochemical and Lanzhou Petrochemical have successfully yielded metallocene PE products since 2019. A number of new PE units, including those from ExxonMobil are mulling over producing metallocene products.
Metallocene PP has a relatively small market size, with only around 100 kt of domestic consumption and mainly relying on imports. Its major applications include spunbond/meltblown non-woven fabrics, ultra-fine denier polypropylene fibers, microwave oven appliances, medical supplies and other high-transparent PP products, food packaging films and other fields.
Metallocene PE usually requires high-carbon α-olefins such as hexene-1 and octene-1 as comonomers. The domestic development of metallocene PE needs to solve the problem of comonomer supply. The development of non-metallocene C6/C8 copolymerized PE products, which have better tensile strength, impact resistance, environmental stress cracking resistance and mechanical processing performance than C4 copolymerized products can be considered at the same time and is a main direction of product structure upgrade. At present, domestic output of C6/C8 copolymerized PE products (including metallocene PE) is below 4 000 kt, with net imports of around 3 000 kt.
The high-end development of polyolefins should be guided by the trend of downstream demand, focusing on the demand for high-end special materials in such fields as green functions and personalized packaging, medical and health, new energy vehicles and lightweight vehicles, smart home appliances, infrastructure construction. China’s national strategy for the prevention and control of plastic pollution accelerates the research and development of new products such as easily recyclable grades in related application scenarios. Table 3 shows the development direction for high-end and differentiated polyolefin products.
Plastic ban to impose far-reaching impact
China has issued the "Opinions on Further Strengthening the Treatment of Plastic Pollution" and the "Notice on Promoting the Control and Treatment of Plastic Pollution" in 2020. The release and implementation of related policies have brought the plastic ban and degradable plastics to the forefront of the market. Degradable plastics, in particular have ushered in an investment boom, with capacities under construction or planned having amounted to over 5 000 kt/a. Whether it may hit polyolefin demand has drawn great concern among industry players.
According to the list of plastics products, which are banned from using or subject to restricted use, shopping bags and express delivery packaging are the mostly affected in the PE sector. Non-degradable PE will be phased out before 2025, which will impact consumption of around 1-1.5 million tons.
As for the agricultural mulch film, the use of thickened mulch film is promoted. Full recycling shall be achieved by 2025 and demonstration and promotion of degradable mulch film shall be carried out, which may have limited impact on PE consumption in this field. The major impact on PP lies in the disposable plastic tableware sector, which consumes 1-1.5 million tons of PP and the consumption volume is required to reduce by 30%, equivalent to a cut in PP consumption of 300-500 kt.
With the increasing awareness of control and treatment of plastic pollution, the concept of reducing the use of disposable plastics is widely recognized. Meanwhile, the establishment of a standardized recovery and recycling system will greatly promote the overall recovery and recycling rate of waste plastics, which will have a profound impact on the growth of polyolefin consumption.
