By Wang Shengwei, Liu Hongji, PetroChina Guangxi Petrochemical Company
At present, the development of China's polyethylene mainly concentrates in film, hollow, pipe, injection molding, etc. Among them, the film industry remains the most important downstream application, accounting for approximately 50% of total consumption. The pipe industry is not as hot as before with the cooling of the real estate industry. Nevertheless, polyethylene still has broad prospects in the infrastructure industry in the future. The demand for hollow is relatively rigid after the enthusiasm for stocking up on anti-pandemic materials subsided. Emerging industries such as casting PE (CPE) films, polyethylene of raised temperature resistance (PERT) pipes, special materials for cables, and super-fiber materials are also developing rapidly.
Forecast on the supply and demand of China's polyethylene market
From 2023 to 2027, China will continue to experience significant capacity expansion in the polyethylene industry. It is estimated that about 24.58 million tons of polyethylene will come on stream in the next five years and by 2027, the production capacity of China's polyethylene will hit 54.39 million t/a. Taking the delay or stagnation of the unit into consideration, it is estimated that the output of China's polyethylene will reach 39.7568 million tons in 2027, a surge of 56.96% over 2022. At that time, China's self-sufficiency rate will be greatly improved, and the imported goods will be replaced to a large extent. However, judging from the current import structure of polyethylene, the import of special materials accounts for about 26% of the total import, so the supply gap of special materials may be made up relatively slow. From a regional perspective, it is expected that the overcapacity situation in the Northeast and Northwest regions will be difficult to reverse. In addition, after a series of units put into production intensively, the output in South China in 2027 will rank second in China and then the supply gap in South China will be significantly narrowed. Table 1 shows the forecast on the supply and demand of China's polyethylene from 2023 to 2027.
1. Forecast on the supply trend of China's polyethylene industry from 2023 to 2027
From 2023 to 2027, China is expected to newly add 24.58 million t/a of polyethylene production capacity. In 2023 alone, there will be 5 million tons of newly-added capacity, mainly concentrated in Shandong province. Shandong, as a major province of industry and manufacturing, has a good industrial scale advantage in the petrochemical industry, but it also has the characteristics and problems of a high proportion of resource-based and heavy-chemical industries. In recent years, Shandong replaced old growth drivers with new ones, integrated refining industry, vigorously promoted the integrated development of refining and chemical, focused on the development of olefins, light hydrocarbons, etc., and formed a number of representative enterprises such as Wanhua Chemical Group Co., Ltd., Shandong Shouguang Luqing Petrochemical Co., Ltd., and Shandong Yulong Petrochemical Co., Ltd., making Shandong province a major supplier of petrochemical products. By the end of 2023, the production capacity of polyethylene in Shandong will account for 13.03% of the national capacity, ranking first in China.
It is estimated that China will newly add 9.7 million t/a of polyethylene production capacity in 2025. In addition, several foreign large-scale refining and chemical enterprises, such as Shell, INEOS, BASF, ExxonMobil, LyondellBasell, etc., are focusing on China, planning to invest and construct factories in provinces such as Guangdong, Zhejiang, and Liaoning through wholly-owned or joint ventures. Among these regions, the South China, particularly around Zhanjiang, Guangzhou Petrochemical, Huizhou Daya Bay, and other industrial clusters, will be one of the fastest-growing regions. By 2027, the production capacity of Guangdong’s polyethylene is projected to increase to 15.36%, an increase of 7.88 million t/a compared to 2022. Figure 1 and Figure 2 show the proportion of China's polyethylene production capacity by variety in 2023 and 2027, respectively.
Figure 1 The proportion of China's polyethylene production capacity by variety in 2023
Figure 2 The proportion of China's polyethylene production capacity by variety in 2027
It can be seen from Figure 1 and Figure 2 that the proportion of China's polyethylene production capacity by variety will not change much in the next five years. Relying on the petrochemical bases integration projects, the company's design products are still mainly HDPE and LLDPE that are widely used in downstream, and LDPE has little change. According to the data, LLDPE will increase significantly, with an increase of 1.7 million tons in 2023, and reach 11.03 million tons in total by 2027. HDPE will have a cumulative increase of 10.34 million t/a, and LDPE will increase by 3.21 million t/a in total.
2. Forecast on the supply structure of polyethylene industry from 2022 to 2027
From the perspective of units under planning and construction, domestic enterprises is developing large-scale refining and chemical integration and coal-chemical deep processing projects, and as a result, the proportion of "two barrels of oil" dominated by PetroChina and Sinopec is expected to drop from 38.44% in 2022 to 38.08% in 2027. Joint ventures and wholly foreign-owned enterprises will gradually play an important role from 2024, and their combined polyethylene production capacity is expected to account for 20.85% of the national capacity, reaching 11.34 million t/a.
Shandong Yulong Petrochemical Co., Ltd., Wanhua Chemical Group Co., Ltd., Ningxia Baofeng Group Co., Ltd. and other local enterprises have always occupied the first place in production capacity, and relying on factors such as extending the original refining and chemical chain and taking advantages in coal-chemical energy, their production capacity will reach 22.34 million t/a in 2027, accounting for 41.07% of the national production capacity. Currently, local enterprises are mainly distributed in Shandong, Inner Mongolia, and Ningxia, and the supply gap in Shandong, Jiangsu, and Zhejiang is narrowing and the contradiction between supply and demand is rising, so their oversupplied resources may transfer to the southwest region through the railway. Figure 3 shows the forecast on the production capacity trend of China's polyethylene enterprises by type in 2022 and 2027.
Figure 3 Forecast on the production capacity of China's polyethylene enterprises by type in 2022 and 2027 (Note: the inner circle is the data in 2022, and the outer circle is the data in 2027)
In recent years, traditional oil-based enterprises are still the main supplier, but coal-based polyethylene experienced rapid development after the industrial chain integration and extension, which squeezed oil-based enterprises’ market share. The light hydrocarbon cracking process, after several years of development, has become mature. However, due to the source of raw materials, its growth rate of production capacity slowed down after the rapid increase of 2.95 million t/a in 2021; Satellite Chemical Lianyungang Petrochemical Co., Ltd. phase II had 400 000 t/a HDPE put into production in 2022, and the total domestic production capacity reached 4.95 million t/a by the end of the year. It is planned to increase by 3.1 million t/a in the next five years, and the production capacity will reach 8.05 million t/a by 2027, accounting for 14.8% of the national production capacity, a decrease of 1.81% compare to 2022. Figure 4 shows the forecast on the production capacity trend of China’s polyethylene by process in 2022 and 2027.
Figure 4 Forecast on the production capacity trend of China's polyethylene in 2022 and 2027 (Note: the inner circle is the data in 2022, and the outer circle is the data in 2027)
In the next five years, there are 33 polyethylene units that are planned and announced to be built, mainly in North China, South China, and Northwest China. Northwest China, relying on resource advantages such as coal and the Tarim Oilfield, will experience a rapid increase in production capacity around Ningdong Energy Chemical Industry Base, PetroChina Dushanzi Petrochemical Co., Ltd. and other petrochemical industry clusters. It is estimated that the production capacity of polyethylene in Northwest China will increase from 8.35 million t/a in 2022 to 15.05 million t/a in 2027, with an average annual compound growth rate of 12.5%, accounting for 27.67% of the national production capacity. South China mainly relies on petrochemical clusters such as Sinopec Maoming Petrochemical Co., Ltd., Zhanjiang, and Huizhou in Guangdong province. Among the enterprises, wholly foreign-owned enterprises contribute an important share in regional supply. The production capacity in South China will increase from 4.09 million t/a in 2022 to 11.97 million t/a in 2027, accounting for 22.01% of the national production capacity. The increase in North China is mainly contributed by Shandong and Tianjin, local representative enterprises including Shandong Yulong Petrochemical Co., Ltd., Wanhua Chemical Group Co., Ltd., and Sinopec Tianjin Petrochemical Co., Ltd. The production capacity in North China will increase from 3.44 million t/a in 2022 to 7.99 million t/a in 2027, accounting for 14.69% of the total production capacity. From the perspective of polyethylene supply from 2022 to 2027, resources in Northwest China will be transferred to North China, East China, and Southwest China. However, due to the increased self-sufficiency in North China, it will be more difficult to enter the market, so the Northwest resources will be transferred to the Southwest. Figure 5 shows the forecast on the production capacity of China's polyethylene by region in 2022 and 2027.
Figure 5 Forecast on the production capacity of China's polyethylene by region in 2022 and 2027 (Note: the inner circle is the data in 2022, and the outer circle is the data in 2027)
3. Forecast on the consumption of China's polyethylene industry from 2023 to 2027
It is estimated that in the next five years, the consumption of China’s polyethylene products will continue to maintain a growth trend. In 2023, the growth of demand will continue to rise with the gradual easing of prevention and control policies, the launch of new units, and the impact of the three-child policy. It is expected that in 2023, the consumption of China's polyethylene will reach 39.9932 million tons, an increase of 5.08% over 2022. The growth may slow down after 2026 due to the reduction of new polyethylene production capacity in China and the substitution of biodegradable products. In 2027, it is estimated that the consumption of China's polyethylene will reach 52.0668 million tons. Figure 6 shows the forecast on the consumption of China's polyethylene from 2023 to 2027.
Figure 6 Forecast on the consumption of China's polyethylene from 2023 to 2027
Figure 7 shows the comparative analysis of the forecast on the consumption structure of China's polyethylene in 2022 and 2027. It can be seen from the figure that the proportion of China's polyethylene consumption in 2027 will not vary much compared to 2022. Among the consumption fields in 2023, the film industry is expected to account 22.1896 million tons, mainly in packaging film and agricultural film industries. In the later period, the demand for high-end film products such as heavy-duty film and metallocene film will increase. The demand for general-purpose films will tend to be saturated and gradually weakened. In 2027, the consumption of films will increase to 28.1717 million tons. Due to the construction and upgrading of infrastructure and the increasing demand for high-voltage cables, the consumption of polyethylene pipe materials is projected to reach 6.2644 million tons in 2027, and the consumption of cable materials will reach 1.9186 million tons. On the whole, the film field will remain the main field of downstream consumption of China’s polyethylenein the future.
Figure 7 Comparative analysis of the forecast on the consumption structure of China's polyethylene in 2022 and 2027 (Note: the inner circle is the data in 2022, and the outer circle is the data in 2027
In 2027, the consumption of China's polyethylene will continue to be mainly concentrated in the three major regions: East China, North China and South China, with little change compared to 2022. Among these regions, East China is expected to account for 31.60% of the total consumption, North China for 24.66%, and South China for 21.10%. However, under the influence of the strategy for large-scale development of western China, some enterprises from the eastern regions have transferred to the western inland areas to build factories. It is estimated that in 2027, the proportion of consumption in Central China and Southwest China will reach 7.38% and 7.03% respectively. Figure 8 shows the comparison of the proportion of polyethylene consumption in different regions of China in 2022 and 2027.
Figure 8 Comparison of the proportion of polyethylene consumption in different regions of China in 2022 and 2027 (Note: the inner circle is the data in 2022, and the outer circle is the data in 2027
4. Forecast on the import and export trend of China's polyethylene from 2023 to 2027
It is expected that the import of China's polyethylene will increase in 2023 compared to 2022. This is mainly due to the impact of the Covid-19 pandemic in 2022, so the recovery of downstream demand was not as good as expected. In addition, the exchange rate of the US dollar against the RMB had risen, leading to the reduced profit of import and significant decline of import volume. However, as the pandemic's impact eases in China in 2023, there is a positive market sentiment, leading to a recovery in the import of polyethylene. It is estimated that from 2023 to 2027, the import of China's polyethylene will gradually decline, mainly because the continuous increase of China's polyethylene production capacity will result in an increased market supply and as the products of the new units try and measure up to the imported products, product quality has been constantly improved. Therefore, the import of China's polyethylene is expected to decrease in the future. Figure 9 shows the forecast on the import trend of China's polyethylene from 2023 to 2027.
Figure 9 Forecast on the import trend of China's polyethylene
It is expected that the export volume of China's polyethylene will show a steady increasing trend from 2023 to 2027. China's polyethylene production units will shoot up in the next five years, and with the capacity release of new units, the output of China's polyethylene will increase accordingly. Especially the linear low-density polyethylene (LLDPE) and high-density polyethylene (HDPE), it is expected that the above two varieties will have more newly-added units to put into production, which will lead to increased pressure on market. By then, a part of resources will be sold abroad, and the export of China's polyethylene will increase gradually. Figure 10 shows the forecast on the export trend of China's polyethylene from 2023 to 2027.
Figure 10 Forecast on the export trend of China's polyethylene from 2023 to 2027
Outlook for China's polyethylene market in the future
1. Analysis of main influencing factors
● Material cost
From the perspective of participants, the domestic polyethylene is mainly produced by Sinopec and PetroChina. As emerging production processes have been constantly improved and developed, it is expected that in the next 3 to 5 years, the production capacity of domestic polyethylene will remain in a period of rapid expansion, and production processes and resource types will be more diversified. From the perspective of raw materials, the current production process mainly focuses on oil-based cracking, coal-to-olefin and light hydrocarbon cracking processes. Among the process technologies, the production capacity of traditional oil-based cracking accounts for about 63.69% and the international oil price of raw materials still supports the price of polyethylene. In addition, the new light hydrocarbon cracking process in recent years is quite competitive, and the market share is expected to continue to rise. However, it is worth noting that most domestic ethane and propane are imported from abroad, and the uncertainty of the economic situation in international trade will bring certain risks to the procurement of raw materials.
● Supply and demand balance
It is expected that in the next five years, the balanced growth of polyethylene supply and demand will gradually weaken, and the domestic market will have gradually increased self-sufficiency rate. On the downstream side, most of the downstream fields are disposable consumer goods, with stable and rigid demand, so the downstream demand structure will not have too much change. It is expected that the growth rate of supply will be higher than that of consumption as a whole, and with the continuous growth of domestic production capacity and supply, its import dependence is expected to decline slowly.
● Industry policy
The economy may be dragged down by stubbornly high inflation, the Federal Reserve's act of forcefully tightening monetary supply, and the spillover effects of the Russia-Ukraine conflict. The tightening supply of US dollars will directly lead to an expansion of the trade deficit and weaken economic growth. However, the impact of policy on prices will have limited duration and the change of price will be eventually determined by the supply and demand balance. At present, the total capacity is still in a state of expansion globally and it is expected that there will be a large number of refining and chemical integration projects to put into production in China in the next five years. Consequently, the domestic polyethylene will have a capacity explosion, and then the internal competition among manufactures will be intensified. As a result, in the future, the general-purpose materials of domestic polyethylene will face fierce competition and an oversupplied phenomenon. Therefore, polyethylene manufacturers should intensify technological transformation, improve product quality, and strengthen research on high-end materials and special materials to meet the requirements of polyethylene downstream industries and enhance their competitiveness in domestic and foreign markets.
2. Market price outlook
In the next five years, the domestic polyethylene industry is expected to experience significant growth in production capacity. According to incomplete statistics, the newly-added production capacity in the next five years will exceed 21 million t/a. By 2027, the total domestic production capacity is expected to exceed 53 million t/a. However, there are uncertainties regarding whether all planned units can be successfully completed and started due to various policy factors such as funding and environmental regulations. Despite these uncertainties, the fierce competition will be inevitable. As domestic production capacity increases, the dependence on imports will gradually decrease. From the perspective of the domestic industry as a whole, the general-purpose materials account for a large proportion, with sufficient market supply, and the growth rate of supply is greater than that of demand, leading to increasing pressure on resource competition. In addition, as the supply and demand pattern constantly changes, the price will return to the cost pricing law and linger around the cost line. In the next five years, considering the tightening of the Federal Reserve's monetary policy and the potential drop of international oil prices from high levels, it is expected that the new units will gradually enter a stable production period and the price will be determined by cost-pricing-law and market supply and demand conditions. By then, the price of polyethylene will continue to decline. When the growth rate of supply exceeds the growth rate of demand, the pressure of resource competition will increase. Taking the price of LLDPE in China as an example, the average annual price range is projected to be between RMB7 800 and RMB8 345 per ton. Figure 11 shows the forecast on the price of China's polyethylene market from 2023 to 2027.
Figure 11 Forecast on the price of China's polyethylene market from 2023 to 2027
Analysis of the competition of China's polyethylene industry in the future
● Bargaining with upstream suppliers
The upstream raw materials of the polyethylene industry are mainly oil-based, coal-based, and light hydrocarbon-based, of which oil-based production capacity accounts for 63.69%, making it the largest source; coal-based production capacity accounts for 18.25%, ranking second; light hydrocarbon production capacity accounts 16.61%, ranking third. Based on the above raw materials of polyethylene upstream, only coal-based enterprises have their own supporting coal mines. The other polyethylene manufacturers, taking crude oil and ethane as upstream raw materials, need to import raw materials for production, so their bargaining power is very weak.
● Bargaining with downstream buyers
The raw materials for polyethylene production are diversified and the local manufacturers’ production capacity is expanding dramatically, so enterprises have increased cost competition pressure, and increased profit transparency. At the same time, polyethylene is a product with a high degree of standardization, so the buyers can have a lot of choices. At present, there are many manufacturers in the polyethylene industry, most of which produce general-purpose materials, and the proportion of high-end products is relatively low. Although some enterprises upgrade their technology and increase the output of high-end products through R&D and other means, users' acceptance of these products is relatively limited. Therefore, the bargaining power of suppliers in the polyethylene industry is relatively weak at present. However, in the spot market, downstream users’ bargaining power is relatively strong.
● Competition with potential entrants
In the next five years, there are numerous polyethylene projects planned in China, with a new production capacity expected to exceed 21 million t/a. With the continuous participation of local enterprises and joint ventures in recent years, the market competition will become more intense. Currently, the demand growth in China's polyethylene industry is relatively slow, leading to an oversupply of production capacity. This oversupply situation, combined with the relatively low entry barriers, poses a high entrant threat from the potential competitor.
● Competition with substitute products
On the one hand, as the production capacity of foreign polyethylene continues to expand and the recycled plastics industry becomes large-scale and standardized, the imported goods and recycled polyethylene may substitute some domestic polyethylene products. On the other hand, the degradable materials are considered as potential substitutes for polyethylene products, and these materials have environmental advantages compared to polyethylene products. In the later period, as government regulations on environmental protection become stricter, there is a growing potential for the development of degradable materials in the future. However, it is still challenging to completely substitute polyethylene products and achieve large-scale application.
● Competition in the industry
In the next five years, the domestic polyethylene industry will continue to experience intensive production capacity expansion. By 2027, the total domestic production capacity is expected to exceed 53 million t/a. From the perspective of enterprise type, Sinopec and PetroChina will remain the main producers in the industry. However, the competition will intensify in the future polyethylene market due to the increasing production capacity of local enterprises and joint ventures, and the high level of product homogeneity. From the perspective of regional distribution, polyethylene manufacturers are primarily concentrated in South China, East China, North China and Northwest China. These regions have abundant resources, so they will face greater competitive pressure.
