By Liu Hongji, PetroChina Guangxi Petrochemical Company

Polyethylene (PE) is widely used in many areas like industry, agriculture, pharmaceuticals, hygiene, daily necessities, etc. In recent years, thin films, hollow articles and pipes have become major consumption fields of PE in China, with thin films being the largest one.

Production

China’s PE capacity has skyrocketed more than 10 million t/a from 2020 to 2022. Domestic cumulative capacity reached 29.81 million t/a at the end of 2022, up 5.11% YoY or 1.45 million t/a YoY (including 400 000 t/a LDPE and 1.05 million t/a HDPE). See Table 1 for more details.

By regions, northwest China boasted a combined PE capacity of 8.35 million t/a in 2022, ranking first followed by east China, which raised PE capacity by 1.45 million t/a in the year to 7.36 million t/a. By technologies, producers – which are mainly Sinopec and CNPC’s subsidiaries located in north China, east China, south China and northeast China – which utilize naphtha cracking technology – accounted for 63.69% (around 18.99 million t/a) of China’s total PE capacity in 2022 (see Figure 1 for more information, like proportions made up by producers choosing light hydrocarbon cracking technology, coal to olefin technology, etc.).

Figure 1 Capacity proportions of PE producers employing different raw materials

Domestic PE capacity is forecast to increase 4.9 million t/a in 2023, mainly involving HDPE, FDPE and LDPE/EVA projects (See Table 2 for details), and is predicted to surge in the following two years. However, instead of 2024 as scheduled, some projects may be put into production in 2025, when new PE capacity will reach 9.7 million t/a. In addition, large foreign firms (e.g. Shell, INEOS, BASF, etc.) are constructing solely or jointly invested PE factories in Guangdong, Zhejiang, Liaoning, etc., leading to rapid expansion of PE capacity especially in south China. Guangdong’s PE capacity for 2027 will grow 7.88 million t/a from 2022’s level, and capacity proportion of the province will increase to 15.36% in 2027.

Capacity expansion stimulated output, which increased year by year and enabled rate of capacity utilization to stay at 83%-88%. However, high crude oil prices raised production costs and decreased profits of PE producers in 2022, when rate of capacity utilization declined YoY to 82.49%, and domestic PE output rose 8.71% YoY, slower than in 2021, to 25.32 million tons – including 11.33 million tons of LLDPE (making up 44.77% of total output), 11.02 million tons of HDPE (43.51%) and 2.97 million tons of LDPE (11.72%).

By regions, PE output of northwest China was up 16.09% YoY to 8.29 million tons, taking up 32.76% of the nation’s total, that of east China up 27.79% YoY to 5.17 million tons (20.42% of the total), and that of northeast China down 3.47% YoY to 4.21 million tons (16.62%).

Market analysis and forecast

Domestic demand for PE showed an upward trend during 2018-2020, fell in 2021 due to factors like the coronavirus and power rationing policy in some areas, and slightly increased in the second half of 2022 with coronavirus restrictions gradually removed. As for annual demand for 2022, it was up 1.86% YoY to 38.06 million tons. See Figure 2 and Table 3 for more details.

Figure 2 China’s apparent consumption of PE during 2018-2022

East China, north China and south China – three regions with large population, developed commerce and convenient transportation – accounted for 33.24%, 23.7% and 19.04%, respectively, of PE consumption in 2022. Demand from central, southwest and northwest China increased, because of national policies. See Figure 3 for more details.

Figure 3 China’s PE consumption structure in 2022, by regions

In 2022, 58.12% of PE was consumed by thin films enterprises, more specifically, mainly by packaging films firms in south China and agricultural films companies in north China. Other four major consumption areas in 2022 included pipes, hollow articles, injection molding and wiredrawing. Further, PE demand from the fields of cable materials, coating materials and rotational molding has grown in recent two years. See Figure 4 for details. China’s PE consumption is expected to rise 5.08% YoY to 39.99 million tons in 2023.

Figure 4 China’s downstream demand structure of PE in 2022

As for main downstream industries, domestic consumption of agricultural films is forecast to be lower than in 2022 to reach 2.88 million tons in 2023, given longer service life of agricultural greenhouses films, and higher criteria and rising use costs of mulching films. Domestic demand for packaging films is predicted to increase at a slower pace in 2023, when domestic packaging films market may continue to face problems of relatively tight supply of high-end PE packaging films, oversupply of mid-and low-end products. Demand gap of pipes will shrink continually, and competition among mid-and low-end products will become more intense. Rate of capacity utilization of PE hollow articles will grow slightly in 2023. China’s PE products consumption will keep rising in the next five years, and demand growth will slow down after 2026, attributable to factors like biodegradable products, etc.

Import and export

From 2018 to 2022, China imported PE – 15.46 million tons annually, on average – mainly from Saudi Arabia, Iran, UAE, South Korea and Singapore, five sources accounting for 57.54%-66.43% of total import volume (See Figure 5 and Table 4 for more details). In 2022, import volume of PE fell 7.69% YoY to 13.47 million tons, 11.07 million tons or 82.22% of which were imported through general trade (See Table 5 for details). PE import volume is forecast to increase in 2023, but during 2023-2027, the import volume will show a downward trend, owing to domestic PE capacity expansion, product quality to be improved continually, etc.

Figure 5 China’s PE import volume from 2018 to 2022

Domestic firms exported PE – 399 200 tons annually, on average, from 2018 to 2022 –mainly to Hong Kong of China, purchasing 386 700 tons for five consecutive years and ranking first, followed by Vietnam and Malaysia. In 2022, PE export volume was up 41.33% YoY to 722 500 tons, but the largest export destination was Vietnam (absorbing 107 800 tons) as demand from Hong Kong of China and Malaysia was impacted by the coronavirus. Hong Kong of China became the second largest destination, and Bangladesh was the third largest one. PE export volume is expected to grow stably from 2023 to 2027.

Figure 6 PE export from 2018 to 2022

Conclusion

China’s new PE capacity may exceed 21 million t/a in the next five years, which, despite uncertainties on new PE projects from capital, environmental policies and other factors, will inevitably lead to severer competition, especially in general PE materials market, which will be troubled by oversupply. Hence, PE producers should upgrade technologies, improve product quality and research high-end products.