By Yan Jinsheng, Sinopec Tianjin Petrochemical
Based on various polymerization processes, polyethylene products of different densities are available, including low-density polyethylene (LDPE), high-density polyethylene (HDPE), linear low density polyethylene (LLDPE), ultra high molecular weight polyethylene (UHMWPE), and metallocene polyethylene controlled by molecular weight and branched chain, among which the first three are prevailing.
Supply analysis and outlook
From 2018 to 2022, the average annual growth rate of China's polyethylene production capacity is 14.6%, from 18.73 million tons in 2018 to 32.31 million tons in 2022. Due to the high import dependency of polyethylene, the import dependency was always above 45% before 2020. From 2020 to 2022, China’s polyethylene capacity expanded rapidly, growing by more than 100 million tons. The traditional oil-based situation was broken and polyethylene industry entered a new stage of diversified development since year 2020. In the next two years, the capacity growth of polyethylene slowed down, and common products are seriously homogenized.
Regionally, the new capacity in 2022 was mainly concentrated in East China. In recent years, enterprises in East China have launched quickly to grab bigger shares in the market, including 400 000 tons of capacity from Lianyungang Petrochemical Co., Ltd., and 750 000 tons of capacity from Zhejiang Petrochemical. Table 1 shows China’s major polyethylene production enterprises and capacity in 2022.
From 2021 to 2022, local enterprises occupied the market shares rapidly, the capacity increased by 2.8 million tons in 2021, 1.55 million tons in 2022, accounting for 41.13% of total capacity. The figure 1 shows the proportion of China's polyethylene production capacity by enterprise type in 2022.
Figure 1 The proportion of China's polyethylene production capacity by enterprise type in 2022
In 2023, merely 1 850 000 tons of new polyethylene capacity are from Shandong Yulong Petrochemical Co., Ltd. As a large industrial and manufacturing province, Shandong Province has a good industrial scale advantage in the petrochemical industry. In recent years, Shandong province has promoted the integration of local petrochemical enterprises, and refined-chemical industries to develop alkene and light hydrocarbon, followed by the startup of several representative enterprises including Wanhua Chemical Group Co., Ltd., Luqing Petrochemical Co., Ltd. and Yulong Petrochemical Co., Ltd. By the end of 2023, if the plants can launch as planned, the polyethylene capacity in Shandong province will account for 13.03% in total, ranking the first. And with more resources supply, Shandong province is bound to gain a more share of PetroChina and Coal enterprises. And the capacity will be surging between 2024 and 2025, whose launch time compared with previous years is lagging. In 2024, some projects, such as Huajin Aramco Petrochemical Co., Ltd. Tahe Refining & Chemical Co., Ltd. and the phase 2 plants of several petrochemical enterprises, will postpone the launch to 2025. Table 2 shows the statistics of China’s new polyethylene capacity between 2023 and 2024.
Demand analysis and outlook
China’s LDPE demand was 5 727 500 tons in 2022, up 0.13% year-on-year. Meanwhile, due to the public health emergency, the terminal market didn’t get a bulk order, resulting in weak raw material demand. Domestically, limited LDPE new output and reduced imports dampened the bearish influence brought by demand. But in the latter half of the year, loose epidemic policies and the LDPE plant launch of Zhejiang Petroleum and Chemical Co., Ltd. increased the demand marginally.
China’s HDPE demand slightly climbed 2.49% year on year to 16 946 200 tons in 2022. Affected by the COVID-19, overseas demand and import of raw materials have decreased. Moreover, degradable material replaced a part of HDPE to meet the market demand, which led to HDPE demand in 2021 falling by 7.63% year-on-year. Despite being impacted by domestic public health emergency in the first half of 2022, the demand for HDPE increased slightly under national support for enterprises in the second half of the year.
Generally, China’s LLDPE demand kept growing from 2018 to 2022. But since 2020, China’s LLDPE demand growth has decreased due to COVID-19. In 2022, China’s LLDPE demand was 15 389 400 tons, up 1.85% over the last year.
Analysis and prospect of import and export
According to data from China Customs, from 2018 to 2022, China's average annual import of polyethylene was 15.9528 million tons. As of August 2022, China’s polyethylene imports were 8 754 300 tons, 12.96% lower than the same period in 2021. At the beginning of 2022, due to high oil prices and public health events, the demand growth in the downstream market was less than expected, accompanied by decreasing price of domestic polyethylene, and minimal arbitrage. Additionally, with the appreciation of the US dollars, the imports remained at a lower level and profits shrunk. As public health emergency took a favorable turn, some areas returned to normal, with bullish downstream demand forecast, rising domestic polyethylene prices, a slight increase in imports while still down from the last year’s level.
According to data from China Customs, China exported 353 500 tons of polyethylene annually on average from 2018 to 2022. As of August 2022, China’s polyethylene exports rose by 34.78% year-on-year to 493 700 tons. In the first half of 2022, public health events and transportation blocks resulted in sluggish downstream demand, greater pressure on production storage, and slow consumption of resources. Along with high prices of international oil, RMB exchange-rate appreciation, higher outer disk prices, and domestic price depression, more enterprises considered the export business, and the domestic export businesses had a noticeable increase than 2021.
Market price analysis and outlook
The market will go through a stressful time in 2023 as the supply of Chinese polyethylene rises marginally faster than the demand. Seen from varieties, mass production will put much pressure on domestic HDPE and LLDPE plants, while not much on the LDPE plants. And regarding imports, on one hand, the profits will decrease with RMB depreciation. On the other hand, foreign plants will cut down the workload due to the high cost, which will result in the overall supply reduction. China’s polyethylene imports are expected to be about 13.26 million tons in 2023, barely changing from 2022. The main supply pressure of polyethylene in 2023 comes from the increase of domestic supply.
The demand of high-end packaging and farm film may increase, supporting that of LLDPE and LDPE. However, without many highlights, HDPE industry just maintains the rigid demand. In 2023, LDPE price outlook is expected to be better than HDPE and LLDPE, with LDPE price varying from RMB9 700 to 11 500/ton, HDPE price range is RMB7 800 to 9 200/ton, LLDPE price range is RMB7 500 to 8 900/ton.
As for domestic supply, in 2023 China’s LDPE won’t have additional production capacity. And in 2023 LDPE imports are predicted to just increase slightly over 2022. Moreover, the demand of high-end packaging and farm film may rise, which will be favorable for LDPE. It is predicted that in 2023 China’s LDPE market price peak will present in the third quarter, with China’s LDPE price ranging from RMB9 700 to 11 500/ton.
In 2023, with mass production of HDPE and full-density polyethylene plants, there will be much supply of domestic polyethylene domestically. Last December, for enterprises of Sinopec Guangzhou Petrochemical Co., Ltd., Sinopec Hainan Refining & Chemical Co., Ltd., and Shandong Jinhai Chemical Co., Ltd., the mass production of polyethylene all included HDPE, with continuous production to 2023. Moreover, in 2023, there will be plant start-up in Shandong Yulong Petrochemical Co., Ltd. Comprehensively, the downstream market of HDPE will just maintain the rigid demand as new demand is difficult to increase the turnover, but the supply will expand by years. In 2023, China’s HDPE price will be lower than that of 2022, ranging from RMB7 800 to 9 200/ton.
Domestically, China faces greater LLDPE supply. In Dec 2022, the new capacity all included LLDPE in Sinopec Guangdong Petrochemical Co., Ltd., and Sinopec Hainan Refining and Chemical Co., Ltd., with continuous production to 2023. In recent years, the polyethylene capacity has surged in local enterprises thanks to diversified raw material, accompanied by bigger competition among enterprises, transparent profits, and fiercer LLDPE price competition. For the imports, one advantage is the cost-effective raw material from abroad, the other is some LLDPE imported from abroad uses high-end material which has better quality and usage. Therefore, the polyethylene imported from abroad still occupies domestic market. And for LLDPE demand, farm and package filming concentrate on the downstream market. By comparison with 2022, China’s LLDPE price is predicted to drop in 2023, ranging from RMB7 500 to 8 900/ton.
From 2023 to 2027, China’s polyethylene production will be centralized. In the next five years, there will be so many domestic polyethylene projects, and based on incomplete statistics, the polyethylene capacity will increase by 21 000 000 t/a. By 2027, the total capacity of domestic polyethylene will exceed 53 000 000 t/a. Affected by capital, environment, and policies, whether the plants can be built and start up production is uncertain, but severe competition indeed exists. With increasing domestic capacity, it is expected that in 2027 the polyethylene import dependence will drop to around 25% as domestic capacity increases and the imports from abroad reduce. Judging from overall domestic industry, general material occupies a large share, along with abundant market supply, supply growing faster than demand, intense resources competition, and the supply-demand structure changing all the time, so the mainstream value of market is letting the price fluctuate around the cost.