By Qi Yan, JLC

Chinese polyethylene (PE) production grows fast as the petrochemical industry moves forward. Moreover, ongoing and high-speed growth of domestic economy benefits not only synthetic resin industry, but PE industry which can develop faster. The general polymerized products, including low-density polyethylene (LDPE), high-density polyethylene (HDPE), linear low density polyethylene (LLDPE), ultra-high molecular weight polyethylene (UHMPE) and metallocene polyethylene (MPE), have become the fastest growing products of synthetic resin for their outstanding performance.  

2022 is challenging for PE industry

At the beginning of 2022, working kick-off in some regions was restricted by control of Beijing Olympics, so the demand had a slow recovery. In February, the international crude oil kept rising due to the tension caused by the regional conflicts, and China’s petrochemical enterprises under cost and profits pressure had no alternative but to reduce workload to limit production and stabilize price. In March, COVID-19 in many Chinese regions intensified. Affected by that, logistics and transportation were blocked, companies delayed getting back to work, terminal factories’ orders plunged with almost no transactions. In the second quarter, the Maoming and Shangshi equipment suspended unexpectedly, with supply dropping sharply. However, the second quarter came across low demand season whose weak supply and demand caused market offer to slump, making people have a bearish market mood. In the second half of 2022, PE supply pressure will gradually show as capacity increases.

PE industry supply status

1. Analysis of PE capacity increase

From 2012 to 2022, Chinese PE capacity changes are shown in Pic 1. As is shown in the Pic, from 2012 to 2019, Chinese PE capacity grew steadily with annual growth around 5% to 7%. From 2020 to 2021, China’s PE market entered large-refining and capacity expansion era, in which capacity shot up at a violent rate. In 2021, the equipment put into production was more intensive, and the capacity increased by 4 400 000 t/a with growth reaching 19.25%. As of 2022, the equipment with capacity of 3 850 000 t/a will be put into production, of which 2 500 000 tons were put into production currently. It is expected that by the end of 2022, Chinese PE capacity can reach 30 510 000 t/a, which will hit a new high.

Pic 1 Chinese PE capacity changes from 2012 to 2022

2021 is an intensive year for PE capacity expansion which increased by 4 400 000 t/a, 890 000 tons higher than 2020 (see Table 1). And capacity of full-density PE increased by 1 950 000 t/a, followed by HDPE with new capacity of 1 750 000 t/a. And new capacity of LLDPE and LDPE was not substantial, with 400 000 t/a and 300 000 t/a respectively.

In 2022, PE capacity put into production was 1 750 000 t/a, of which LDPW occupied the most, 1 350 000 t/a. In the first half of 2022, LDPE only had one set of equipment used for mass production in Zhejiang Petroleum and Chemical Co., Ltd., with capacity 400 000 t/a (see Table 2).

In the later period of 2022, the launch capacity of PE will be 2 100 000 t/a (see Table 3). Based on the regions, the equipment was intensively applied in South China with capacity of 1 700 000 t/a, followed by North China, with 400 000 t/a. The type with the largest output is HDPE, holding capacity of 1 100 000 t/a, followed by full-density PE with 800 000 t/a. Taken together, LDPE will mainly increase workload in the later of the year.

From 2023 to 2025, the capacity of domestic PE will increase by 10 600 000 t/a (See Pic 2), 4 sets of equipment will be put into production in 2023 and 2024 each with capacity of 2 400 000 t/a and 2 900 000 t/a. 3 sets of equipment to conduct SOP in 2025, the capacity could attain 5 300 000 t/a. Based on the regions, in the next 3 years, the equipment used for launch will be intensively applied in North China, generating capacity of 2 200 000 t/a, followed by the Northeastern district, whose capacity can reach 2 050 000 t/a.

Pic 2 Chinese PE capacity expansion from 2023 to 2025

Since 2020, large-scale refining and light hydrocarbon equipment have been intensively applied to the production, but new capacity has been more concentrated in coastal areas (see Pic 3). Based on different regions, as of 2022, the PE capacity in Northwestern China occupied 29%, ranking first, followed by East China holding 22%. And Northeast China, ranked third accounting for 17%. The North China and South China accounted for 14% and 12% respectively. The Southwest China had the least proportion, accounting for merely 2%.

Pic 3 Regional proportions of China’s PE capacity from 2021 to 2022

2. Analysis of output increase

In 2021, China's PE capacity expansion was relatively high, and the new production equipment created capacity of 4 400 000 t/a, which has hit a new record for recent 6 years (see Pic 4). The growth of output and capacity couldn’t be separated from each other. With ongoing launch of new equipment in the year, by the end of 2021, domestic capacity and output reached a new high. And in 2021, China's PE output was 23 180 000 t/a, with a growth rate of 16.12%. In 2022, the PE capacity and output are expected to be around 30 510 000 tons, and 25 500 000 tons respectively, with a year-on-year output growth of 10.01%.

Pic 4 Changes analysis of Chinese PE output

3. Apparent consumption change analysis of PE

From 2012 to 2021, Chinese apparent consumption increased periodically (see Pic 5). In 2021, affected by COVID-19, policy restrictions on electricity, production, and plastic, PE demand slowed down, and consumption showed negative growth for the first time within a decade. In the first half of 2022, China's apparent PE consumption was 18 473 500 tons, with a slight decrease of 40 000 tons from a year earlier, with a year-on-year decrease of 0.2%. In the first half of the year, the downstream demand declined while the rising ocean freight improved the export cost of products, which blocked export of downstream products and reduced orders. And due to COVID-19, some demand had a slow recovery. However, domestic apparent consumption is expected not to decline substantially in the future, with steady regulations and economy growth, and policy support.

Pic 5 China’s apparent consumption changes from 2012 to 2021

PE industry demand status

1. Comparison analysis of supply and demand

Chinese PE industry is unbalanced by capacity and consumption distributions (See Pic 6). The three major consumption areas, North, East, and South China, whose output can’t meet consumption needs due to considerable market gaps. However, they need to rely on flowing foreign resources to shorten the market gaps. In the future, the consumption development of Midwestern cities will boost that of Southwest and Northwest China.

Pic 6 China’s apparent consumption changes from 2012 to 2021

2. Consumption proportion of downstream market

PE products are consumption-orientation, who have large consumption volume in the downstream market with wide varieties (see Pic 7). PE film, belonging to traditional processing industry, keeps the main consumption force. In the future, injection molding, tubular products and packaging industries will jointly improve PE demand.

Pic 7 China’s PE consumption distribution

3. Output of downstream products

From January to June in 2022, cumulative output of China’s plastic products were 40 241 000 tons, 1.3% higher than the same period of 2021 (see Pic 8). Based on the timeline, domestic demand in the first half of 2022 was sluggish. And the increasing price of international crude oil brought about the surge of market price, which held back the demand increase in downstream market. And then the outbreak of COVID-19 restricted production of most enterprises, getting in the way of transportation and products demand. Traditionally, some regions, affected by rainfall and power brownouts in the third quarter, were elusive to have a flip on enterprises’ start-up. However, as September a busy season comes, the demand in downstream market is expected to grow. In the fourth quarter, the output of plastic products will increase slightly, and the focus should be the plastic products required for electronic commerce activities including Singles Day and Double 12 shopping carnivals.

Pic 8 Output of China's plastic products from 2021 to 2022

Development forecast of PE industry

Currently, PE industry is driven by three forces. Firstly, the infrastructure construction is beneficial to increase the demand of plastic pipes and downstream market.Secondly, the packaging industry grows rapidly under the joint support of food processing industry and upgraded plastic packaging. Thirdly, broad application of PE boosts its demand. And plastic application in medical filed increases with an aging population. Meanwhile, PE is also faced with pressure in three aspects. The first is tackling the variants of COVID-19, which repeatedly emerges, bringing uncertainty to economy recovery. The second is mass production leads to the PE overcapacity. The third is the plastics ban on delivery parcels has three new requirements for packaging, greening, reduction, and recyclability, which might be negative for the increase of plastics demand.

In the future, China's PE demand will be mainly in the following three areas:

First, the parcel delivery industry: The main packaging varieties using PE in parcel delivery are as follow, air cushion film, wrapping film, and packaging bags, etc. With the development of Internet, the purchases (such as clothing and books) featured by effort less packaging and strong resistance to transportation, have steadily shifted to diversified ones (such as fragile products and fresh food). Therefore, packaging requirements also need to improve.

The second is the vehicle field: In the future, new energy vehicles will bring fresh blood to automotive industry. PE can be applied to vehicle exterior parts such as fuel tank, fender liner, clip hook, spring gasket, gasoline filter shell, interior parts including armrest, cover plate, fan guard, spare tire clamp, visor, suitcase lining, etc., and chassis parts, such as air duct, battery, brake fluid and washer fluid tanks.

     The third is the medical field. Yearly aging population gradually increases medical demand, and plastics are widely used in medical industry for its flexibility, transparency, shock-resistance, and high output. Prevention materials related to COVID-19 improve partial PE demand.