Ke Xiaoming, Senior Specialist at Sinopec Group

Persistent investment boom during China’s “14th Five-Year Plan” period has caused an acute surplus supply in the bulk chemical commodities market. The petrochemical industry is in urgent need of structural adjustment, with high-end and differentiation being the development focus. Although China made breakthroughs in a batch of high-end materials technologies, its self-sufficiency rate of high-end chemical products still has a big growth room. 

Development of high-end materials, the inevitable choice of transformation

In 2019, around 60% of petrochemical products faced excess supply or severe excess supply, while C2 and C3 fell short. A large number of chemical and refining integrated units are expected to be built by 2025, which may aggravate the already surplus supply of major petrochemical products (around 75%). Details are shown in Figure 1.  

Figure 1 Supply-demand situation of China’s petrochemical products

From another perspective, high-end chemical materials, including high-performance resins, rubber, fiber and specialty materials still boast a vast development potential, as China’s self-sufficiency rate is below 53%. Details are shown in Figure 2.

Figure 2 Self-sufficiency rate of China’s high-end chemical materials in 2020

Rapid downstream industry development calls for high-end materials

As for the applications of high-end chemical materials, rapid development of advanced manufacturing industries including auto, aerospace, rail transit, electronics and electrical appliances, medical treatment, construction pipes and new energy during the “14th Five-Year Plan” period will boost demand for high-end materials. These industries post a growth rate of above 10% and some can even reach 50%.  

1. Auto

New energy vehicles have ushered in a booming development phase, on the back of favorable government policies and improving economics. Its market penetration rate will rise from 5% in 2020 to 20% in 2025 and even reach 50% in 2035. 

The auto industry growth and structural changes provide new development opportunities for high-end chemical materials. The using volume of chemical materials in domestically-made autos is around 130 kg, much lower than that of the US and European countries. New chemical materials, especially high-end materials are widely used in new energy vehicles, mainly low-weight and battery materials. Details are shown in Table 1. 

2. Rail transit and aerospace

Civil aviation will boost the development of public transport and general aviation during the “14th Five-Year Plan” period. The number of planes will sustain a 5% growth and chemical materials will also change. Driven by the urbanization process, high-speed railway and urban rail transit will keep a growth rate of 7%-10%. High-end chemical materials will become more widely applied in rail transit and high-speed railway industries of interior trimming, body, window, wheel and steering device. Details are shown in Table 2.  

3. Electronics and electrical appliances

The transformation and high-quality development of the manufacturing industry is inseparable from the Internet upgrading during the “14th Five-Year Plan” period. Communications are moving from 4G to 5G, with the number of base stations increasing at a fast pace. The electrical appliances industry is in a high-growth phase and also a phase of transition to high-end development. This will bring about high-speed growth of high-end chemical materials.   

Take cellphones for instance, China’s smart phone sales reached around 1.47 billion in 2020. With the completion of the laying of 5G network communication facilities in 2023, the market will usher in a wave of large-scale cellphone replacements and purchases. Domestic cellphone production will climb to around 1.9 billion in 2025 and high-end chemical materials for cellphone production will become the major concern of the market. 

4. Medical 

The ageing population in China leads to numerous requirements of biomedical materials. The self-sufficiency rate of chemical materials used in the medical field is below 40% and growth rate stands at 20%, which is a relatively high level. Table 3 lists different chemical materials used in vascular, orthopedics, ophthalmology, blood purification and vaccine supporting products.

5. Construction

China’s urbanization rate was at 60% in 2020 and will rise to 70% in 2030. Building insulation, reinforcement and pipeline construction will accelerate the application of new chemical materials, such as PU, bimodal PE, polybutene-1, carbon fiber and silane glue.  

6. New energy

Renewable energy will enjoy rapid development during the “14th Five-Year Plan” period. The growth rate of wind power and photovoltaic installation will exceed 10%, which will drive up the consumption of high-end chemical materials.  

New energy, electronics and electrical appliances, auto and construction are expected to be the largest application fields for high-end chemical materials during the “14th Five-Year Plan” period, with the growth rate at 6-16%. Other sectors will also post brisk growth rates, although the output value of chemical materials is relatively small. Overall, domestic demand for high-end chemical products will increase from 30 000 kt to 43 000 kt during the “14th Five-Year Plan” period, with the average annual growth rate at 7.7%. 

Enhance competitiveness of high-end chemical materials from four aspects

China’s high-end materials development faced some problems during the “13th Five-Year Plan” period. First, the overall guarantee capacity was insufficient. Second, the lack of supporting raw materials. Third, weak production and application technology. There was a lot of work to do for the combination of downstream and end-use industries, despite the ability in monomer production. Fourth, the self-sufficiency rate of high-end products was low. Fifth, the market access threshold was relatively high. Sixth, the industrial chain supporting system was incomplete.  

While during the “14th Five-Year Plan” period, the high-end chemical materials market has a vast growth potential, high technology content, and lucrative added-value, which will shape crucial strategic opportunities for high-quality development. Under China’s "dual cycle" pattern, new infrastructure will enable industrial upgrading, which will drive accelerated growth of high-end chemical materials.

Enterprises shall carry out their work from the following four aspects: the first is to address the major needs of the country and the industry, and strive to overcome shortcomings and resolve key technical problems. The second is to improve independent innovation capabilities and build a batch of industry technology incubation platforms. The third is to enhance cooperation of industry, study, research and use to promote applications and explore new market needs. The fourth is to deepen the reform of scientific and technological system and actively create a development environment favorable for innovation.

    In terms of products, as for high-end polyolefins, efforts shall made to expand the production capacity of high-end polyolefin and focus on product grade differentiation, promote industrialization and mass production of metallocene products, enhance the localization of POE and high VA content EVA production technology; for engineering plastics, the priority shall be put on the development of products that are in high demand and short supply, to increase the production scale of PPS, PI and PEEk, accelerate the the industrialization of special nylon and special enginnering plastics; in the field of special rubbers, to expand production capacity and meanwhile to speed up the industrial development of SEPS and SEBS; as to functional film, enterprises shall develop varieties that are highly reliant on imports, such as water treatment film, solar battery back sheet film, lithium battery diaphragm materials etc; for electronic chemicals, focus shall be put on integrated circuits, flat panel displays, new energy battery and printed circuit boards etc.