Zhang Minmin, JLC Chemical

Biaxially oriented polypropylene (BOPP) film is an important flexible packaging material, and is called as "Queen of packaging" as it is everywhere in our daily life.

The domestic BOPP industry is in excess of supply now. It saw rapid capacity expansions before 2014 and a slowdown in growth after the year. The profitability of the BOPP industry is good, but the actual profits are ups and downs, far beyond the cost line in the most time. The profitability is weakening and the profits are gradually narrowing. Competition among producers never stops and consecutive expansion projects prove this. The industry has entered the stage of differentiated competition. Some domestic producers have changed their business models from producing general-purpose films to focusing on developing and producing high-end functional films by debottlenecking technical barriers.

The capacity will continue to increase in the next few years

1. Supply situation

The BOPP capacity has been increasing year by year since 2014. There has been a spree of capacity expansion in recent years, contributing to increasing capacity. However, the operating rates have been on a decline due to the intensified supply and demand imbalance, a slowdown in the economic growth, as well as the implementation of environmental protection policies. As a result, the BOPP output has been increasing slowly and downstream demand is weak (see Figure 1).

Figure 1 BOPP supply and demand trends in China, 2014-2021

Only one new BOPP plant was started up in 2020. The capacity addition of BOPP was relatively stable in 2021. Two new production lines were started up and two old lines were restarted in the first half of 2022. There will be many new and expansion projects to be stream in the second half of 2022, but these plans may be postponed due to the pandemic.

In terms of apparent consumption (output + imports - exports), China's apparent consumption of BOPP has been on a rise year by year. The apparent consumption of BOPP film increased from 2018 to 2021. In 2021, the apparent consumption of BOPP was 3.9226 million tons, up by 9.27% year on year (see Figure 2).

Figure 2 Apparent consumption of BOPP in China from 2014 to 2024

According to the import categories, China mainly imported high-end BOPP films, such as heat-sealing films, laser films, and capacitor films. The self-supply of BOPP has been ample in recent years, with the rate hitting above 104% from 2019 to 2021 and the highest hitting 113% shockingly (see Figure 3). In the future, the demand for imports will continue to decrease with domestic BOPP producers’ research on functional films.

Figure 3 Self-sufficiency rate of China's BOPP from 2019 to 2021

BOPP production capacity is increasing rapidly, and producers exclusively adopt the biaxial stretching process. Table 1 shows China’s new and expansion plans of BOPP in 2022. The BOPP capacity has been on a rise in recent years, and some new high-end functional film plants have been put into production, so the total capacity will continue to increase in the next few years. Notably, the BOPP capacities are unevenly distributed, which is highly attributed to regional economic development, corporate cohesion and expansion power. BOPP plants are mainly located in East China, South China and North China, and the proportion of capacities in these three regions will be higher and higher in the future.

The top three BOPP production regions in China were East China, South China and North Chinain at the end of 2021, accounting for 50%, 25% and 12% respectively (see Figure 4). Zhejiang, Guangdong and Jiangsu were main provinces of BOPP capacity. However, there was limited capacity in the western and central regions, leaving the BOPP market to be highly uneven in capacity distribution. 

Figure 4 BOPP capacity distribution in China

2. Demand situation

Chinese BOPP products are mainly used in the packaging for food, clothing, adhesive tape, electronic appliances and tobacco. They are also used to package cosmetics, flowers, stationery, medical treatment, plastic knitting, etc.

By demand structure, food packaging is the largest downstream demand of BOPP, followed by adhesive tape and clothing packaging. Among them, food packaging accounts for 51%, adhesive tape accounts for 24%, and clothing packaging accounts for 17% (see Figure 5).

Figure 5 Downstream demand structure of BOPP in China

BOPP profitability is gradually improving

The profitability of China's BOPP industry has gradually improved in recent years (see Figure 6). BOPP profits were in a positive zone in the whole year of 2021, but the margin room was narrowing in the first half of 2022 as feedstock prices changed and demand was lacklustre in the most time of the period except in March when demand was firm on a need-to basis. The profits in the first quarter were slightly higher, and were narrowed in the rest months of the first half of year.  

Figure 6 Seasonal trend of BOPP profits in China from 2019 to 2022

Both opportunities and challenges exist in the industry

The BOPP industry is facing new opportunities and challenges in the new environment at home and abroad.

Three opportunities:

First, people have higher requirements on packaging comprehensively these days. Packaging materials are required to be safer, more hygienic, and more protective, and to be more easily unpackaged. Meanwhile, the materials are required to be environment-friendly to conform to the development trend of green environmental protection.

Secondly, as the product classification is more segmentized and the equipment is more specialized and intelligent, plastic packaging materials are developing from general BOPP film to high-performance, multi-functional, energy-saving and environment-friendly BOPP composite film. BOPP materials have big advantages in mechanical, optical and electrical performance. The characteristics determine that the application field of BOPP materials will be constantly extended.

Thirdly, export opportunities are increasing by expanding market shares in foreign countries. The export volume of BOPP products in China has increased rapidly in recent years. With the intensified domestic competition, producers will attach importance to the development and expansion of foreign markets. Producers should pay attention to improving product quality and building their brands, vigorously expanding overseas markets, and shrugging off vicious domestic competition.

Three challenges:

First, oil enterprises are the upstream suppliers of BOPP films. The raw material procurement in China is generally settled in cash, while the cash settlement rate of BOPP sales is quite low, which puts BOPP producers in higher capital risk.

Secondly, buyers' requirements for product quality are constantly improving amid the fierce market competition, which, in turn, calls for higher requirements for producers’ technical research and development. However, there are limited investments in the R&D, so the industrial development is lingering on quantity over quality. 

Thirdly, there remains irrational business competition behaviors among enterprises such as price battles.