Polyethylene: Entering a period of deep adjustment

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　2026 will be a pivotal year for the development of China’s polyethylene market, as the industry’s total production capacity is set to exceed 45 million tons for the first time (annual production capacity, the same hereafter). Affected by factors such as the concentrated release of new production capacity and weak demand from downstream sectors, the supply and demand dynamics in this industry will continue to evolve; market competition will become more rational, and companies will face new challenges in their operations. Overall, China’s polyethylene industry is steadily shifting from competition based on scale expansion to competition focused on value enhancement, with structural adjustment having become the main trend in its development. 　　Capacity continues to grow while structural differentiation intensifies. By 2026, the additional domestic production capacity for polyethylene is expected to reach 6.15 million to 7.29 million tons, with a growth rate of 15% to 18.5%. The production pace shows a pattern of being low in the first half and higher in the second half; new production capacity was limited in the first half, while market supply gradually increased in the second half. 　　In terms of feedstock routes, the newly added capacity mainly comes from oil-based facilities; major petrochemical enterprises such as Huajin Aramco and Zhongsha Gulei have made significant contributions. Meanwhile, coal-based facilities have also seen a wave of commissioning. Among them, BASF’s 500,000-ton polyethylene plant at the Zhanjiang integrated site became operational in January 2026 ； China National Petroleum Corporation’s 1.2 million-ton per year second-phase ethylene project at the Dushanzi Petrochemical and Tarim facilities is set to be fully completed by 2026, including two plants for producing 450,000 tons of high-density polyethylene each, as well as one plant for producing 300,000 tons of low-density polyethylene. 　　In terms of product structure, the newly added production capacity shows a clear trend of optimization. According to Zhuochuang Information, the planned production volume for full-density units is 2.75 million tons, accounting for the largest share ； The high-density polyethylene (HDPE) plant with a capacity of 2.05 million tons follows closely behind. The commissioning pace of linear low-density polyethylene (LLDPE) has slowed down significantly; some new plants plan to produce differentiated products such as metallocene LLDPE. It is estimated that in 2026, the growth rate of effective LLDPE production capacity will be merely 4%, significantly lower than the 24% growth rate recorded in 2025. Starting from 2025, the production scale of low-density polyethylene (LDPE) and LDPE/EVA plants will continue to expand, with a clear trend toward high-end and differentiated transformation in the industry. 　　Zhou Ruixia, an analyst at JLC, believes that in 2026, the supply-demand dynamics in the polyethylene industry will continue to adjust, with the overall trend characterized by “periodic attempts to achieve balance and rapid price fluctuations”. The addition of new production capacity in the first half of the year was limited, and coupled with a reduction in imported supplies, the market foundation remained relatively stable ； In the second half of the year, as capacity expansion is gradually implemented, the market will operate under pressure; after giving back earlier gains, prices may continue to decline. 　　Diverging cost trends; widening profit gaps. In 2026, there will be a marked divergence in the cost structure for polyethylene, and the profit gap between companies employing different production processes is expected to widen further. 　　Oil-based polyethylene accounts for nearly two-thirds of the industry’s total production capacity, and its profitability is closely tied to international crude oil prices. In 2026, crude oil prices are expected to fluctuate at high levels. Coupled with a decline in spot prices of polyethylene, the profit margins of oil-based producers will face certain pressure. 　　Analysts at Zhuochuang Information note that large integrated refining and chemical companies are able to maintain certain levels of profitability thanks to their scale advantages and higher degree of raw material self-sufficiency, while smaller plants face pressure to be phased out or to undergo transformation and upgrading. 　　Coal-based polyethylene accounts for nearly 20% of the industry’s total production capacity, and its cost is directly linked to coal prices. Coal prices are expected to decline moderately by 2026, the cost advantages of coal-based routes will gradually become apparent, and profit levels are likely to remain stable. This type of production capacity is primarily concentrated in coal-rich regions such as Shaanxi and Inner Mongolia. Leveraging their resource advantages and policy support, these enterprises have a relatively solid foundation for development. 　　The light hydrocarbons processing route is highly favored in the market due to its advantages such as high yields, low costs, and low carbon emissions. However, it has the drawback of being highly dependent on imported raw materials; the reliance on ethane imports is expected to exceed 95%, with sources being highly concentrated, coming almost entirely from the United States. Market experts say that the global ethane market will face a supply shortage in 2026, with rising demand in Asia, but the United States has limited capacity for ethane exports ； Meanwhile, trade frictions and geopolitical risks may drive up import costs. Domestic polyethylene producers utilizing light hydrocarbons as raw materials are facing increased cost pressures, with their profit margins continuously being squeezed; some enterprises may opt to operate at reduced capacity. 　　Domestic demand is recovering steadily, while exports face challenges. In 2026, the apparent domestic consumption of polyethylene is expected to reach around 41.5 million tons, a year-on-year increase of 7.8%. However, this growth rate remains lower than the pace of capacity expansion. 　　In traditional demand sectors, areas such as packaging film, agricultural film, and pipes are experiencing slow growth, with external demand under pressure. Professional agencies predict that the operation rates in the aforementioned sectors generally range from 30% to 55%, with limited increases in orders and stable seasonal fluctuations. Increasing barriers to global trade further suppress traditional demand, while trade measures such as the EU’s Carbon Border Adjustment Mechanism continue to put pressure on plastic product exports. 　　Wang Chunming, general manager of Shandong Ruiyang Chemical Co., Ltd., said that demand from emerging industries is growing rapidly, with the demand for specialized materials such as photovoltaic backsheet films and lithium battery separators continuing to increase. However, these emerging sectors still account for a small proportion of total consumption, making it difficult to fully offset the weakness in traditional demand. 　　The implementation of domestic policies on \"large-scale equipment renewal\" and \"trade-in of consumer goods\" has yielded positive results, injecting new momentum into sectors such as home appliances, automobiles, and high-end packaging, and driving up demand for high-performance products like metallocene polyethylene and high-impact polyethylene. While supporting the high-end material market, this trend also drives the industry toward greater refinement and differentiation. 　　Over the past 5 years, China’s polyethylene exports have experienced a compound growth rate of 34.5%, and exports are set to continue growing steadily by 2026. 　　Traders report that China’s exports of polyethylene to the Southeast Asian market are on the rise, with the export growth rate of high-end products being higher than that of conventional materials. “Factors such as the upgrading of infrastructure and declining shipping costs resulting from the joint development of the Belt and Road Initiative have created favorable conditions for polyethylene exports. At the same time, companies are also actively responding to changes in global trade policies by enhancing their resilience to risks through product upgrades and market diversification. 　　In summary, driven by various factors such as increasing supply, diverging costs, and rising demand, a thorough adjustment of the domestic polyethylene market by 2026 is inevitable. Relevant companies need to accelerate technological upgrades and the development of high-end products, and identify their proper position in this increasingly differentiated market landscape, in order to gain a firm foothold and an advantage in the new round of industry competition.