SunSirs: The Petrochemical Industry Will Continue to Face Challenges Over the Next Five Years

According to China Chemical Information Weekly, China's petrochemical industry has remained mired in a slump in recent years amid sustained capacity expansion and high oil prices. By 2025, the sector will face another historic peak in capacity additions, yet consumption is projected to decline below expectations due to high uncertainty. The industry is actively adjusting its raw material and supply structures, diversifying export markets, and establishing new trade channels. Leveraging national policies aimed at stabilizing the market, it is striving to overcome these challenges. The recent pace of capacity additions has disrupted the traditional 5-7 year investment cycle. Concurrently, influenced by factors such as diminishing demographic dividends, slowing investment and export growth, and the development of a circular economy, China's petrochemical industry will face challenges in finding a consumption pivot for market rebalancing during the 15th Five-Year Plan period. Structural supply-demand imbalances may require more time to resolve, leading the industry to endure a prolonged downturn and an “L-shaped” recovery trajectory, characterized by eight key features.

1. Capacity expansion enters a phase of “upgrade-driven elimination”

During the 14th Five-Year Plan period, China's new ethylene capacity will exceed 29 million tons/year, while new paraxylene (PX) capacity will reach approximately 16 million tons/year. By 2025, China's ethylene capacity will expand to 64 million tons/year, and PX capacity will increase to 42.38 million tons/year. During the 15th Five-Year Plan period, projected new ethylene and PX capacity additions are 25 million tons/year and 9.5 million tons/year, respectively.

Currently, China's petrochemical self-sufficiency rate continues to rise, while structural supply-demand imbalances persist for certain products and profitability remains persistently low in some segments. Phasing out outdated facilities and constructing new, larger-scale units has become a primary strategy for enterprises with substantial existing capacity to adapt to large-scale market competition.

According to incomplete statistics, during the 14th Five-Year Plan period, China shut down approximately 1 million tons/year of ethylene capacity while existing enterprises added 2.4 million tons/year of new ethylene capacity. During the 15th Five-Year Plan period, an additional 3.5 million tons/year of ethylene capacity will be shut down, with existing enterprises adding 5.4 million tons/year of new ethylene capacity. Through this “upgrade-based elimination,” by the end of the 15th Five-Year Plan period, China's average ethylene plant capacity will increase from the current 800,000 tons/year to 1 million tons/year, while the average paraxylene (PX) plant capacity will rise from 1.1 million tons/year to 1.25 million tons/year, significantly enhancing competitiveness.

2. “Oil-to-Chemicals” and “Non-Integration” Accelerate Industry Transformation

With refined oil products reaching peak demand, China's refining sector is transitioning toward chemical production. Despite recent years of low profitability, the momentum and trend toward chemical transformation remain unchanged in the medium to long term. During the 15th Five-Year Plan period, China's refining industry is projected to increase its chemical light oil yield from the current 17%-18% to 23%-24%. While various catalytic cracking and hydrocracking units will boost chemical feedstock production, they will also further increase yields of by-product chemicals (C3, C4, aromatics, etc.), raising refinery chemical product yields from the current 15% to 19%. Moreover, processes like catalytic cracking of heavy oils and direct conversion of crude oil to chemicals not only maximize utilization of crude resources but also accelerate the shift from refining to chemical production.

To mitigate the impact of peak refined oil demand on petrochemical project investments, an increasing number of private enterprises are adopting a “non-integrated” approach, with propane dehydrogenation (PDH) projects being the largest-scale examples. Driven by demand and policy factors, China's PDH facilities have experienced explosive growth in recent years. From 2020 to 2024, new PDH capacity additions reached nearly 20 million tons per year, accounting for over 50% of new propylene capacity. More than 10 million tons per year of PDH projects are expected to come online before 2030.

China's ethane cracking projects have also advanced rapidly in recent years, including CNPC's Tarim and Changqing ethane cracking facilities, Huatai Shengfu's refinery gas cracking, and ethane cracking projects utilizing imported ethane by Xinpu Chemical and Satellite Chemical. By 2024, ethane cracking capacity had increased to approximately 8% of China's ethylene production routes. During the 15th Five-Year Plan period, over 6 million tons/year of ethane cracking projects will be launched, with numerous additional projects in the planning stage.

Overall, novel “oil conversion” projects are replacing traditional integrated refining and petrochemical projects as the primary driver of capacity expansion during the 15th Five-Year Plan period. By 2030, China's non-integrated olefin production capacity is projected to rise from the current 22% to over 25%. While the development of “oil conversion” and “non-integrated” approaches offers diversified pathways for the industry, it also intensifies surplus pressures in chains like propylene and reshapes the competitive landscape of production facilities.

3. Green Industrial Transformation is Imperative

Low-carbon development and green transformation in the petrochemical industry represent an inevitable trend. In 2022, the Guiding Opinions on Promoting High-Quality Development of the Petrochemical Industry During the 14th Five-Year Plan Period, jointly issued by six ministries including the Ministry of Industry and Information Technology, explicitly encouraged petrochemical enterprises to develop and utilize green hydrogen in a reasonable and orderly manner based on local conditions. It also promoted demonstration projects for integrating refining and coal chemical industries with green electricity and green hydrogen.

Coal chemical projects, in particular, commonly suffer from a “high carbon, low hydrogen” imbalance in their production processes, resulting in significant carbon emissions. Therefore, integrating coal chemical industries with green energy sources like wind and solar power will become one of the primary pathways for capacity upgrading and deep decarbonization during the 15th Five-Year Plan period. Theoretically, if green hydrogen fully replaces conventional hydrogen without altering production processes, raw coal consumption is projected to decrease significantly, with carbon emissions during production expected to drop by over 50%.

Currently, new coal-to-olefins projects planned by enterprises such as Ningxia Baofeng, China Coal Group, and Sinopec have all achieved effective coupling between green hydrogen and coal chemical industries. However, considering factors such as the stability of green hydrogen supply, the scale and cost of renewable energy, the 15th Five-Year Plan period will still primarily focus on coupling at the ten-thousand-ton scale.

Simultaneously, the low cost of capturing high-concentration carbon dioxide from coal chemical plants, along with large-scale CCUS (Carbon Capture, Utilization, and Storage) projects such as enhanced oil recovery and hydrogenation to methanol, will also serve as powerful drivers for production capacity transformation.

4. Consumption Will Increasingly Depend on New Cycles and Channels

During the 15th Five-Year Plan period, China's total population will enter a decline phase while society progresses from moderate to deep aging. With urbanization nearing 70%, future growth rates will significantly slow, dampening consumption expansion and upgrading driven by urbanization. Concurrently, shifts in the external trade environment and the development of a circular economy will further constrain traditional petrochemical industries.

Against this macro backdrop, China's consumption foundation will increasingly depend on rising national income, the recovery of industries like real estate, and the emergence of new sectors—marking the onset of a new economic cycle.

Currently, China's annual per capita disposable income stands at CNY 41,314 . Future growth rates will be closely tied to macroeconomic performance. Considering that China's economic growth is expected to remain between 4% and 5% for an extended period, there remains significant room for annual per capita income to rise substantially, positioning the country to smoothly enter the ranks of high-income nations.

In the real estate sector, following the introduction of a series of supportive policies, some regional markets showed signs of modest recovery by late 2024 and early 2025. Most domestic and international institutions anticipate China's real estate industry will bottom out between 2025 and 2026, after which it will exhibit complex differentiation and gradual recovery.

Emerging industries have already yielded scaled benefits in wind and solar energy, power batteries, and electric vehicles, driving growth across sectors including petrochemicals. Future breakthroughs in robotics, low-altitude economy, 6G, hydrogen energy, and nuclear power will unlock new trillion-yuan markets, creating more consumption scenarios and possibilities.

Regarding new trade channels, the Belt and Road Initiative has yielded positive results. In 2024, China's exports to BRI partner countries and regions grew by 9.6% year-on-year, exceeding the overall export growth rate of 7.1%. For the first time, BRI partners accounted for over 50% of China's total imports and exports, reaching 50.3%. Looking ahead, the implementation of the China-ASEAN Free Trade Area 3.0 and the advancement of trade cooperation between China and Latin America/Africa will inject fresh momentum into China's consumer market through new trade corridors.

5. Petrochemical Market to Enter New Equilibrium Development Phase After 2030

In summary, driven by the sustained growth of emerging consumption, new industries, and new exports, China's ethylene equivalent consumption is projected to increase at an annual rate of 4% or higher.

China's petrochemical capacity expansion began on a large scale in 2020, with annual新增 ethylene capacity exceeding 5 million tons. As the timeline for achieving the “dual carbon” goals approaches, the pace of petrochemical project launches has accelerated further. By 2030, China's ethylene production capacity is projected to approach 90 million tons per year, at which point over 90% of bulk petrochemical products will face structural supply-demand imbalances.

The accelerated pace of capacity deployment has disrupted the traditional 5-7 year investment cycle, making it difficult for the industry to absorb the large volume of new capacity in the short term. Consequently, China's petrochemical sector will inevitably face a prolonged period of low profitability. Simultaneously, as the window for achieving carbon peak approaches, domestic investment enthusiasm within the industry is waning. From 2030 to 2035, the scale of planned domestic projects is projected to be significantly lower than in previous periods, with only 3 to 4 projects expected. Annual新增ethylene capacity will average just 600,000 tons, providing an opportunity to absorb excess capacity accumulated earlier.

By the end of the 14th Five-Year Plan period, new PX capacity additions in China will slow significantly due to regulatory controls. During the 15th Five-Year Plan period, annual new PX capacity additions are projected to decline from approximately 5 million tons/year in the previous five-year period to 300,000–400,000 tons/year.

Overall, the industry's investment cycle, policy constraints, and structural supply-demand imbalances will propel China's petrochemical sector into a new development phase after 2030. This will be characterized by a dual approach of slowing new capacity additions and phasing out outdated facilities, alongside a parallel slowdown in both capacity absorption and new consumption growth, gradually leading the market toward a new equilibrium.

6. Scope for Raw Material Structure Adjustment May Narrow

To counter the sluggish petrochemical market in recent years, many enterprises have proactively adjusted their production and operations, with low-cost raw materials being the preferred choice.

Since China's first ethane cracker commenced operations in 2019, ethane cracking project capacity has reached 4.3 million tons/year (including dry gas ethane and ethane-propane mixed cracking). This is projected to increase to 9.35 million tons/year around 2030. Ethanol cracking producers like Satellite Petrochemical have become significant players in the ethylene market, while PetroChina is poised to become China's largest ethylene producer using ethane as feedstock.

In terms of actual production costs, ethanol cracking is projected to be approximately RMB 1,000 per ton cheaper than naphtha cracking, offering a clear advantage. However, due to the sustained expansion of U.S. ethane exports in recent years and slowing natural gas production growth in the Permian Basin—a key NGLs (natural gas liquids) production region—U.S. Gulf ethane prices are projected to experience a rapid surge around 2027, reaching approximately $210/ton. This represents a substantial 45% increase compared to 2023 levels. Subsequently, as export volumes continue to grow and U.S. NGL production approaches its peak, U.S. ethane prices are expected to rise further to $250/ton. At that point, China's landed ethane prices would reach $580/ton, narrowing the price differential with Northeast Asian naphtha from the current $140/ton to $60/ton. Factors such as shipbuilding (chartering), terminals, storage tanks, pipelines, and transportation cycle issues are gradually eroding the substantial cost advantage of ethane cracking.

Furthermore, the lack of low-cost conversion methods for “oil-to-chemicals” means naphtha costs remain high in integrated project hydrogenation units. Directly using diesel fractions as feedstock not only incurs high costs but also produces large volumes of low-value byproducts like ethylene tar. Technologies like heavy oil catalytic cracking still face challenges of low propylene yield and byproduct utilization rates coupled with high energy consumption. Substituting purchased liquefied petroleum gas (LPG) for naphtha as cracking feedstock is also constrained by the strong upward pressure on LPG market prices driven by the recent concentrated commissioning of PDH projects. Overall, China's petrochemical industry currently lacks sufficient low-cost feedstock options, necessitating more refined feedstock utilization and potential-tapping strategies.

7. New Materials Also Need to Guard Against Overcapacity Issues

Currently, China's petrochemical industry is undergoing a critical transition from old to new growth drivers. Traditional industries represented by real estate, agriculture, home appliances, and fuel-powered vehicles have largely entered mature or even declining phases. In contrast, strategic emerging industries such as new energy vehicles and high-end equipment, along with future industries like quantum computing and humanoid robots, will become the core drivers supporting growth in petrochemical product consumption. This is particularly true for high-value-added chemical new materials such as high-performance resins, high-performance fibers, high-performance membrane materials, and electronic chemicals.

Currently, China's total demand for chemical new materials stands at approximately 44 million tons per year, with a self-sufficiency rate below 70%. By 2030, driven by the rapid development of strategic emerging and future industries, total demand is projected to rise to around 69 million tons per year, achieving a compound annual growth rate (CAGR) of 7%, while the self-sufficiency rate is expected to increase to 76%.

Since 2021, foreign investment (including Sino-foreign joint ventures) in China's chemical new materials capacity has exceeded 7 million tons per year, with most products being high-performance resins such as engineering plastics and high-end polyolefins. Domestic private enterprises have also continuously strengthened their industrial competitiveness, with companies like Wanhua Chemical and New Hesheng emerging as leaders in their respective niche markets. However, the high returns have attracted a large influx of enterprises, leading to intense competition in certain high-end products with significant market scale. These include photovoltaic-grade EVA (ethylene-vinyl acetate copolymer), ultra-high molecular weight polyethylene resin, POE (polyolefin elastomer), carbon fiber, ethylene carbonate, adiponitrile, nylon 66, PBAT (polybutylene adipate-co-terephthalate), DINP (diisononyl phthalate), and metallocene polyethylene, are facing overcapacity risks as domestic production capacity is rapidly concentrated. According to incomplete statistics, during the 15th Five-Year Plan period, China's planned production capacity includes over 3.4 million tons/year of EVA, over 4.5 million tons/year of POE, approximately 6 million tons/year of metallocene polyethylene, and a staggering 7 million tons/year of nylon 66.

The development of differentiated bulk products faces dual challenges: structural supply-demand imbalances in the domestic market and competition from low-cost commodity and modified materials, coupled with the emergence of niche downstream markets demanding customized solutions. This necessitates meticulous production management and sustained R&D investment from enterprises.

8. Plastic Circular Economy to Enter New Development Phase

Advancing the circular economy has become a consensus within the petrochemical industry. Globally, multiple companies including ExxonMobil, South Korea's LG, and Covestro have established plastic recycling and reuse initiatives. Physical recycling remains China's predominant plastic recovery method (accounting for 99%), yet the waste plastic recycling system remains underdeveloped, plagued by low collection efficiency and complex sorting challenges. Currently, China recycles over 20 million tons of waste plastic annually, with physical recycling, landfilling, and incineration each accounting for approximately 30%. As the waste plastic recycling industry chain matures further, particularly with the implementation of the EU Carbon Border Adjustment Mechanism and the introduction of numerous plastic consumption restrictions worldwide. Notably, the fifth session of the Intergovernmental Negotiating Committee (INC-5) for the Global Plastics Treaty in 2024, though failing to produce a legally binding international instrument on plastic pollution as scheduled, will continue negotiations. A potential treaty restricting plastic production and imposing pollution management fees on manufacturers could impose significant burdens on plastic producers.

Chemical recycling also represents an effective pathway for plastic circularity, though the technology remains in its developmental infancy and has yet to achieve large-scale industrial application. Among chemical recycling methods, pyrolysis stands as the most advanced and mature waste plastic recycling technology currently in industrial deployment, with operational applications both domestically and internationally. The PetroChina Research Institute of Petrochemical Technology has independently developed the Continuous Pyrolysis Technology for Waste Plastics (RPCC), establishing a closed-loop cycle: “plastic → waste plastic → olefins → resin → plastic.” Other chemical recycling methods include catalytic cracking and depolymerization. With ongoing technological breakthroughs and enhanced processing capabilities, chemical recycling is poised to become a key segment in the plastic recycling industry. By 2030, China's annual plastic recycling volume is projected to reach 26 million tons, with chemical recycling expected to account for one million tons.

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