SunSirs: Polyethylene: Entering a Period of Profound Adjustment

The year 2026 marks a pivotal juncture in the development of China's polyethylene market, with total industry capacity set to exceed 45 million tonnes annually for the first time. Influenced by factors such as the concentrated release of new capacity and sluggish downstream demand, the industry's supply-demand dynamics will undergo sustained adjustment. Market competition is becoming more rational, presenting fresh challenges for corporate operations. Overall, China's polyethylene industry is steadily transitioning from scale-driven competition towards value-driven competition, with structural adjustments becoming the dominant theme of development.

Capacity Growth Continues, Structural Differentiation Intensifies

New domestic polyethylene capacity additions in 2026 are projected to reach 6.15–7.29 million tonnes, representing a growth rate of 15%–18.5%. The commissioning pace exhibits a ‘low-to-high’ pattern, with limited new capacity in the first half of the year and gradually increasing market supply in the latter half.

From a feedstock perspective, the new capacity primarily originates from oil-based plants, with significant contributions from large refining and petrochemical enterprises such as Huajin Aramco and Sinopec-Saudi Aramco. Simultaneously, coal-based plants are also seeing concentrated commissioning. Among these, BASF's 500,000-tonne polyethylene plant at its Zhanjiang integrated base commenced operations in January 2026; and PetroChina's Dushanzi Petrochemical Tarim 1.2 million tonne Phase II ethylene project is scheduled for full completion in 2026, incorporating two 450,000-tonne full-density polyethylene units and a 300,000-tonne low-density polyethylene unit.

From a product structure perspective, the new capacity exhibits a clear trend towards optimisation. According to data from Zhuochuang Information, the planned production volume for full-density units stands at 2.75 million tonnes, representing the largest share; high-density polyethylene (HDPE) units follow closely with 2.05 million tonnes. The commissioning pace for linear low-density polyethylene (LLDPE) has slowed significantly, with some new units planning to produce differentiated products such as metallocene LLDPE. Projections indicate that effective LLDPE capacity growth in 2026 is forecast at merely 4%, substantially lower than the 24% expansion anticipated for 2025. The scale of low-density polyethylene (LDPE) and LDPE/EVA units commencing production will continue to expand from 2025 onwards, clearly signalling the industry's shift towards high-end and differentiated transformation.

In 2026, the polyethylene industry's supply-demand dynamics will undergo continuous adjustment, characterised by ‘phased equilibrium-seeking with rapid price fluctuations’. Limited new capacity releases in the first half, coupled with reduced imports, will maintain relatively stable market fundamentals. However, as capacity expansions materialise in the second half, the market will face pressure, with prices likely retracing gains before potentially testing new lows.

Cost Trends Diverge, Profit Margins Widen

In 2026, polyethylene production costs will exhibit significant divergence, with profit margins widening further between enterprises employing different production processes.

Oil-based polyethylene accounts for nearly two-thirds of the industry's total capacity, with profitability closely tied to international crude oil prices. With crude oil prices expected to fluctuate at elevated levels in 2026, coupled with declining spot prices for polyethylene, profit margins for oil-based producers will face considerable pressure.

Large integrated refining and petrochemical enterprises, leveraging economies of scale and self-sufficiency in feedstock, may still maintain profitability. However, smaller and medium-sized plants face pressure to either exit the market or undergo transformation and upgrading.

Coal-based polyethylene accounts for nearly 20% of total industry capacity, with costs directly linked to coal prices. Coal prices are projected to moderate in 2026, gradually revealing the cost advantage of the coal-based route, which is expected to maintain profitability. Such capacity is primarily concentrated in coal-rich regions like Shaanxi and Inner Mongolia. Leveraging resource endowments and policy support, these enterprises possess relatively solid development foundations.

The light hydrocarbon process route is favoured by the market for its high yield, low costs, and low carbon emissions. However, it suffers from a critical weakness: high dependence on imported feedstocks. Ethane import dependency is projected to exceed 95%, with sources being highly concentrated, almost entirely originating from the United States. Market analysts indicate that by 2026, the global ethane market will face tight supply conditions. While demand in Asia is projected to rise, US ethane export capacity remains limited. Concurrently, trade frictions and geopolitical risks may elevate import costs, increasing pressure on domestic light hydrocarbon-based polyethylene producers. Profit margins are expected to continue narrowing, potentially prompting some enterprises to reduce production rates.

Domestic Demand Steadily Recovers; Exports Face Challenges

In 2026, China's apparent polyethylene consumption is projected to reach approximately 41.5 million tonnes, representing a 7.8% year-on-year increase. However, this growth rate remains below the expansion pace of production capacity.

In traditional demand sectors, packaging films, agricultural films, and pipe materials are experiencing slow growth amid pressure from external demand. Industry experts predict that operating rates across these sectors generally range between 30% and 55%, with limited order growth and seasonal fluctuations stabilizing. Intensifying global trade barriers further suppress traditional demand, while trade measures such as the EU's Carbon Border Adjustment Mechanism continue to exert pressure on plastic product exports.

Demand growth in emerging industries is accelerating, with sustained expansion in specialized materials like photovoltaic backsheet films and lithium battery separators. However, emerging sectors still account for a low proportion of overall consumption, making it difficult to fully offset the weakness in traditional demand.

Domestic policies like “Large-Scale Equipment Renewal” and “Consumer Goods Trade-In” are taking effect, injecting new momentum into sectors like home appliances, automobiles, and high-end packaging. This is driving increased demand for high-performance products like metallocene polyethylene and high-impact polyethylene. While supporting the high-end materials market, this trend is also guiding the industry toward more refined and differentiated development.

Over the past five years, China's polyethylene exports achieved a compound annual growth rate of 34.5%, with exports expected to maintain steady growth through 2026.

Traders report that China's polyethylene exports to Southeast Asia continue to grow in share, with high-end products expanding faster than commodity grades. Factors such as infrastructure upgrades in Belt and Road partner countries and declining shipping costs have created favorable conditions for polyethylene exports. Concurrently, enterprises are actively adapting to global trade policy adjustments by enhancing risk resilience through product upgrades and market diversification.

In summary, by 2026, the domestic polyethylene market will undergo profound restructuring driven by multiple factors including supply growth, cost differentiation, and demand upgrading. Relevant enterprises must accelerate technological advancement and high-end product development to secure their positioning within this fragmented market landscape. Only then can they establish a firm foothold and seize competitive advantages in the next wave of industry competition.

As an integrated internet platform providing benchmark prices, on February 27, the benchmark price of SunSirs LDPE was 8750.00 RMB/ton, a decrease of 3.49% compared with the beginning of the month (9066.67 RMB/ton).

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