Zhang Fan, CHN Energy Technology and Economics Institute

Polyolefins, typically polypropylene (PP) and polyethylene (PE), are thermoplastic resins and can be widely used in fields such as agriculture, packaging, electronics, electrical, automotive, machinery and daily necessities. China’s polyolefin market has seen structural shortage recently, with intense homogeneous competition among low- and medium-grade products and over reliance on imports of high-end and differentiated products.

China’s polyolefin supply-demand in 2020

1.Polypropylene product structure adjustment accelerates

China’s total polypropylene capacity in 2020 was 31.13 million t/a, with an output of 26.56 million tons and an average operating rate of 85.3%. The capacities of Sinopec, PetroChina, Ningxia Baofeng Group, CHN Energy Group, Shaanxi Yanchang Petroleum Company, and Oriental Energy Corporation are respectively 7.04 million t/a, 3.36 million t/a, 3 million t/a, 2.35 million t/a, 1.35 million t/a, 0.84 million t/a, and 0.80 million t/a, accounting for 27%, 13%, 12%, 9%, 5%, 3% and 3% of the national total.

The domestic polypropylene consumption in 2020 reached 30.57 million tons, up by 1.09 million tons over 2019, and the biggest growths came from yarns, injections, films and fibers. The plastic-woven bags and biaxially-oriented polypropylene films were two sectors enjoying the fastest increase and a development to high-end products, with consumption at 8.82 million tons and 7.4 million tons respectively, accounting for 28.85% and 24.21% of total. China’s polypropylene consumption structure in 2020 is shown in Table 1. The polyolefins applications have been further subdivided, and medium and high melting point fibers, thin wall injections, medium and high melting point copolymer injections, and transparent grades have entered the market, indicating that the product structure adjustment is accelerating, as well as the process of polypropylene industry chain diversification.

2. Polyethylene: Sinopec and PetroChina cover over 50% of the total capacity

China’s polyethylene capacity expanded to 22.18 million t/a (including 10.07 million t/a HDPE, 8.3 million t/a LLDPE and 3.84 million t/a LDPE) in 2020, with a production of 19.82 million tons and a utilization rate of 89.4%. By the raw materials, naphtha-based polyethylene capacity took 72.4% of the total, coal-based 17.6%, and methanol-to-olefin 4.7%.

Liaoning Baolai Chemical and Yantai Wanhua launched in 2020 new light hydrocarbon cracking line. The domestic polyethylene market has supplies from multiple routes of naphtha cracking, coal-to-olefin, methanol-to-olefin and light hydrocarbon cracking.

Sinopec and PetroChina, as pioneers in introducing overseas technologies, dominate the polyethylene industry, and their capacities have exceeded 50% of the national total in 2002. Coal chemical enterprises are basically located in coal-rich Northwest China, providing ample feedstock to downstream polyolefin production. The coal chemicals have caught up with PetroChina in terms of polyethylene capacities in 2020. Meanwhile, teapot companies and joint venters occupied 14.6% and 12.3% of the total polyethylene capacity. 

China’s polyethylene consumption in 2020 was 37.84 million tons, with the growth in demand from e-commerce, logistics & industrial packaging, scientific planting of crops, development of food packaging, urbanization pipeline network construction, and incentive of coal to gas policy. See Table 2 for detailed polyethylene consumption structure in 2020.

China’s polyolefin supply-demand pattern to be changed

China’s economy has recovered from the Covid-19 pandemic, and polyolefin supply and demand increase steadily. 

1. Polypropylene will become smart engineering plastics

China will focus on its domestic market instead of exporting in the following years. Thanks to the huge rigid demand of home market, polypropylene supply and demand will grow stably (chart 1). From 2021 to 2025, the demand for polypropylene will expand by 6.1% at an average annual growth rate (AAGR). The potential market demand for catering, tourism, daily consumer goods, elderly care and health care is huge, and consumption patterns such as take-out delivery and online shopping have stimulated the demand for polypropylene packaging in sectors of takeout boxes, plastic bags, woven bags and tapes. China's polypropylene demand is expected to account for 44% of the global total in 2025, higher than the sum of North America and Western Europe.

Chart 1 China’s polypropylene supply-demand pattern

Polypropylene will still be one of the most versatile plastic resins in the near future. With the development of new technologies and processes, it has been possible to change its properties. However, injections, films & sheets, yarns and fibers are still the major consumers, and their demand for polypropylene take over 90% of the total. Injection moldings products are the biggest consumer, including home appliances, housewares, takeout boxes, toys, automobile parts, and electrical & electronics. The annual consumption of polypropylene from injection molding will exceed 25% of the national total through 2021 to 2025, with an AAGR of 5.9%.

Applications with biggest growth are fibers, injections and pipe extrusions. The growing textiles, non-textiles and packaging industry will continue to booster fibers; more sales of takeout, home appliances and automobiles support the thin-wall injections and low- & high-melting point copolymerization injections; while strategic policies such as urban water supply facilities renovation and construction, underground integrated pipeline corridor construction, "coal to gas" modification, shantytown renovation, and water pollution prevention and control continue to drive the demand for pipe extrusions. It is anticipated that the AAGRs of fibers, injections and pipe extrusions during 2021 to 2024 will be 7.24%, 5.92% and 5.90% (Chart 2). China’s polypropylene supply-demand forecast is detailed in Table 3. 

Chart 2 China’s PP demand forecast

2. Diversified types of raw materials for polyethylene 

In the coming years, China will have diversified production routes for polyethylene due to low crude prices, with raw materials of naphtha, coal, methanol, ethane and LPG. Domestic polyethylene capacity is expected to grow at an AAGR of 9.67% from 2021-2025. The policy of "Opinions on Further Strengthening Plastic Pollution Control" issued in January 2020 regulated and restricted the use of one-time plastics and will dampen the polyethylene demand in the long term. Hence, the AAGR of demand is expected to drop to 5.92% in the period of 2021-2025, much lower than the previous five years’ 9.84%. By 2025, China’s polyethylene capacity and demand will be 35.2 million t/a and 50.44 million tons. As the capacity is not enough to cover the demand, China needs to import about one third of polyethylene products, mainly general-purpose grades. Theoretically, domestic products can substitute the imports (Table 4).

Films and sheets are dominant applications in HDPE, LLDPE and LDPE. The metallocene LLDPE, mostly used in food and industrial packaging films, is popular among downstream users, enjoying a huge demand. Major metallocene LLDPE producers are Qilu PC, Dushanzi PC, Shenyang PC and Daqing PC, with total national supply of 60 000 tons. The import dependency is as high as 96%. LDPE film demand, boosted by online shopping packaging and photovoltaic films, will rise by 4.32% AAGR through 2021 to 2025. The urbanization and pipeline network construction in China will push HDPE demand to grow at 6.97% AAGR during 2021 to 2025. And large extrusion & coating market will keep supporting LDPE to expand at 4.34% AAGR from 2021 to 2025 (Chart 3-6).

Chart 3 China’s PE supply-demand forecast

Chart 4 China’s HDPE demand forecast

Chart 5 China’s LLDPE demand forecast

Chart 6 China’s LDPE demand forecast

Conclusion and suggestion

Global economy was heavily impacted by the Covid-19 in 2021. However, China’s polyolefin industry has recovered with capacity and profits exceeding the level before the pandemic. Meanwhile, the imbalanced global supply-demand brings opportunities to China’s polyolefin industry. During the 14th Five-Year Plan period, China’s polyolefin capacity will grow steadily, so will the self-sufficiency. However, the structural shortage will intensify. Therefore, accelerating the high-end and differentiated development of polyolefin products will become an important direction for the sustainable development of polyolefin industry.

Firstly, high-end polyolefin has been listed as one of the eight chemical materials in Guide for the Development of New Chemical Materials Industry in the 14th Five-Year Plan in 2021. The aim is to improve the self-sufficiency to 70% by 2025. We suggest accelerating the development of catalysts, processes and technologies for key high-end polyolefin products such as polyethylene copolymerized with α-olefin, ultra-low density polyethylene and ultra-high molecular weight polyethylene, polypropylene copolymerized with propylene-butyl, high melt strength polypropylene, high crystallinity polypropylene, metallocene polyolefin, and polybutylene-1 to enrich the product structure.

Secondly, it is recommended to increase the investment in high-performance synthetic materials, establish a system to attract talents, encourage and support innovation, and provide a good environment for the cultivation of such talents and innovations. 

Thirdly, producers should strengthen the cooperation with research institutes and end applications to clarify the demands, give a full play of their strengths, breakthrough technology bottleneck, and gradually build a "community of interest" in research, development, production and application to better realize the integration of research, production and market.

     Finally, it is necessary to build some high-level public platform for innovation, construct a new technology innovation chain of R&D, design, engineering, production and market for national strategic emerging industries and key projects, and promote the polyolefin products to be of more value.