By Huang Ruqing, Lu Fenpei and Hu Nan, Shandong High-end Chemical Research Institute

Development opportunities

1. Fast-growing demand

It is expected that China's polyether polyol demand will grow at a compound annual growth rate of about 6.1%, reaching 4.73 million tons by 2027. Approximately 90% of polyether polyols are used in the production of polyurethane. According to the development forecast of the domestic polyurethane industry, the application scale and demand field of polyurethane will continue to expand with the continuously increasing population, the accelerating urbanization, as well as the consumption upgrading in industries, such as energy conservation of architecture, automobiles, home appliances, and textiles.

2. Headwinds from carbon peaking and carbon neutrality goals

Serial Research Report of 2022 China Urban and Rural Construction Carbon Emissions compiled by China Association of Building Energy Efficiency shows that the proportion of carbon emissions during the operation phase of buildings in China accounted for 21.7% of the national carbon emissions. The government has continuously announced policies to support the development of the building energy efficiency industry, accelerate the energy-saving renovation of existing buildings in China, and carry out construction as per energy-saving building standards. Polyether polyols are one of the main raw materials for synthesizing polyurethane, which is the main insulation material for building exterior walls. The growth of polyether polyols will enhance building energy efficiency in China, promote green and low-carbon development in energy conservation and emission reduction, and eventually assist in achieving the goals of carbon peak and carbon neutrality.  

3. Continuous breakthroughs in high-end polyether polyol technology

China's research and development on polyether polyol started relatively late, but in the recent decade, major enterprises and research institutes have been attaching more importance to the research on low unsaturation and high molecular weight polyether polyols. For example, Jinling Petrochemical Research Institute and Shanxi Coal Chemical Institute of Chinese Academy of Sciences carried out the development of high-end polyether polyol catalysts and process technologies. They have continuously made breakthroughs in core technologies and achieved independent intellectual property rights, and they have transitioned the products into industrial production. 

Challenges

1. Lower operating rates as a result of oversupply 

In 2022, the capacity of polyether polyols in China reached 7.45 million tons, the output hit 4.359 million tons in 2022, the import volume was about 432 000 tons, the export volume was around 1.275 million tons, and the apparent consumption was at 3.516 million tons. The average operating rate was low at about 58.5%. See Table 1 for details. 

2. Increasingly fierce competition amid rapid capacity expansion

The profits of epichlorohydrin have been lucrative since 2018, stimulating epichlorohydrin capacity to expand rapidly. The consumption from polyether polyols accounts for over 80% of downstream demand for epichlorohydrin, so polyether polyols have become the preferred choice for the majority of epichlorohydrin producers in China.  

It is expected that the capacity, output, and demand of polyether polyols in China will reach 9.1 million tons, 5.85 million tons, and 4.73 million tons by 2027, respectively. In the coming five years, the domestic capacity of polyether polyols will still exceed demand given the start-ups of newly-built and expanded projects of polyether polyols, which will make the market competition more furious. 

It is expected that the operating rate of polyether polyols will still decline slightly to 57.6% by 2027 (see Figure 1).

Figure 1 Operating rate and forecast of polyether polyols in China

3. Uneven capacity distribution between the east and west due to highly concentrated capacity  

In 2022, the capacity of polyether polyols was mainly distributed in Shandong, Jiangsu, Guangdong, and Zhejiang provinces. To be specific, the capacity in Shandong Province was at 3.15 million t/a, accounting for 42.3% of ethe total; the capacity in Jiangsu Province was at 1.51 million t/a, accounting for 20.9%; the capacity in Fujian Province was at 660 000 t/a, accounting for 9%; the capacity in Zhejiang Province was at 600 000 t/a, accounting for 8%. There were no polyether polyol producers in the central and western regions of China yet. 

4. Few producers integrated with downstream units, and small production scale

According to statistics, 71.2% of China's polyether polyol plants are equipped with their own feedstock epichlorohydrin or are adjacent to epichlorohydrin producers. However, there are very  few producers, such as Wanhua Chemical, that produce downstream polyurethane. Most of the domestic producers have not yet had brand recognition, and high-end polyurethane products have long relied on imports. 

The production scale of Chinese polyether polyols producers is relatively small, and there is a significant gap with foreign peers. Among them, the total capacity of plants over 400 000 t/a is 2.53 million t/a, taking up only 35% (see Figure 2).

Figure 2 Capacity distribution of polyether polyols in China (10 kt/a)

Suggestions on development

1. To accelerate the development of high-end products such as high activity, high molecular weight, and amino terminated polyether polyols 

According to the supply-demand analysis of polyether polyol categories, the market presents a structural uneven landscape of "oversupply of general low-end products and insufficient supply of high-end specialized products". High-end products such as high activity, high molecular weight, and amino terminated polyether polyols are the main development direction in China, with bullish market outlook.

2. To accelerate the development of polyether polyols and related products in the central and western regions

The construction of ethylene plants in the central and western parts of China has accelerated in recent years, but there is no integrated plant for "epichlorohydrin - polyether polyol - polyurethane". Therefore, it is recommended that refinery and coal chemical producers in these regions should speed up for it. If they accelerate the construction of polyether polyol-related units, secure raw materials locally and sell products locally, the supply shortage in the central and western parts of China will be eased, which will further reduce logistics costs for surrounding producers and users, as well as promote the development of related industries.