Surpassing 70 million tons/year! In 2025, there may be an oversupply of ethylene in China!

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Ethylene has always been regarded as a key indicator determining the production level of the chemical industry. In 2022, China’s ethylene production capacity reached 46.75 million tons per year, surpassing that of the United States and making China the world’s largest producer of ethylene. By 2025, China’s ethylene production capacity is expected to exceed 70 million tons per year, which will suffice to meet domestic demand and may even result in a surplus. The ethylene industry is the core of the petrochemical industry; its products account for over 75% of all petrochemical products and play a vital role in the national economy. Ethylene, propylene, butadiene, acetylene, benzene, toluene, xylene, ethylene oxide, ethylene glycol, and other substances produced by ethylene plants serve as basic raw materials for new energy and new materials. To date, 32 large-scale integrated refining and chemical processing projects with production capacities of over 10 million tons each produce ethylene. Moreover, the production of ethylene through large-scale integrated refining and chemical processing results in relatively low production costs. The integrated refining and chemical processing project in Guangdong Petrochemical can process 20 million tons of oil per year and produce 1.2 million tons of ethylene. Compared with refineries of similar scale, such integrated enterprises can achieve a 25% increase in the added value of their products and a reduction of energy consumption of around 15%. Using ethylene as a raw material, it is possible to produce new energy and new materials products such as polycarbonate, lithium-ion battery separators, photovoltaic EVA, α-olefins, POE, carbonates, DMC, and ultra-high molecular weight polyethylene. Statistics show that 18 types of downstream ethylene products are related to emerging industries like new energy and new materials. Thanks to the rapid development of new energy and emerging industries such as new energy vehicles, photovoltaics, and semiconductors, the demand for new energy and new materials continues to rise. The oversupply of ethylene, a core product in the petrochemical industry, indicates that the industry may undergo a reshuffle and differentiation. This means not only that competitive enterprises will displace less competitive ones, and advanced production capacities will replace outdated ones; it also implies the demise and emergence of leading players within various segments of the downstream ethylene value chain. Currently, photovoltaic EVA film has become an indispensable component of photovoltaic modules. For every 1 GW of photovoltaic modules produced, the corresponding demand for EVA particles is approximately 5,000 tons. In recent years, China’s photovoltaic industry has developed rapidly, leading to a swift increase in the demand for photovoltaic EVA resin. The Guangdong Petrochemical Integration Project is capable of processing 20 million tons of oil per year and producing 1.2 million tons of ethylene. The Juzhengyuan (Jieyang) New Materials Base project makes use of the ethylene and syngas produced by the Guangdong Petrochemical Project to create an industrial chain that goes from syngas – acetic acid – vinyl acetate to ethylene-vinyl acetate copolymer (EVA) materials. In recent years, demand for photovoltaic EVA resin in China has been growing rapidly. Shenghong Petrochemical plans to add 750,000 tons of EVA production capacity, with gradual commissioning starting by the end of 2024. In addition to Dongfang Shenghong, other integrated petrochemical companies such as Sinochem, CNPC Refining & Chemicals, and Rongsheng Petrochemical have also launched EVA projects. 2 Ultra-high molecular weight polyethylene: With the rapid progress in technologies related to new energy vehicles, high-speed railways, medical biomimicry, high-performance fibers, and other fields, the demand for ultra-high molecular weight polyethylene has seen significant growth. In the field of new energy, ultra-high molecular weight polyethylene has become one of the most popular materials for lithium battery separators due to its strong resistance to external punctures, its ability to remain intact at high temperatures, and its excellent safety properties. The 16-million-ton/year integrated refining and petrochemical project of Shenghong Petrochemical features an ethylene cracking unit with a capacity of 1.1 million tons/year. On December 27, 2022, the 20,000-ton/year UHMWPE production facility of Shenghong-Sibur Petrochemical was successfully commissioned in one go. This marks the further advancement of Shenghong’s “1+N” strategy for new energy and new materials. 3MLCC release films. MLCCs (multilayer ceramic capacitors) are also known as the \"rice of the electronics industry\"; they are among the most widely used and fastest-growing surface-mounted components in the world. The sectors with the fastest growth in demand for these components include smartphones, automotive electronics, wearable devices, and 5G communication bases. The release films in MLCCs all use PET-based films as the base material. In 2021, Kanghui New Material Technology Co., Ltd., a wholly-owned subsidiary of Hengli Petrochemical, successfully achieved stable and efficient production of high-end release base films for MLCCs through independent research and development. This marked the establishment of a complete industrial chain encompassing crude oil – ethylene – ethylene glycol – new polyester materials. 4. Carbonate: Battery-grade carbonates are key materials in the production of lithium batteries, and the growth of lithium batteries has pushed carbonate electrolyte additives into a period of strong demand. Zhejiang Petrochemical is the first integrated refining and chemical project in China to be planned on a one-time basis for an annual refining capacity of 40 million tons. The project at Zhejiang Petrochemical, which produces 200,000 tons of dimethyl carbonate per year along with 132,000 tons of ethylene glycol, came online in October 2020; the capacity of each production unit is the highest in the world. Satellite Chemical has an annual production capacity of 1.25 million tons of ethylene and 730,000 tons of ethylene oxide. The company also plans to build a 750,000-ton/year carbonate plant. Moreover, the range of carbonate products produced by integrated refining and chemical companies has continued to expand to include vinyl carbonate (VC) and fluorovinyl carbonate (FEC). The new 5COC/COP cycloolefin polymer materials mainly fall into two categories: one is cycloolefin copolymers (COC), and the other is cycloolefin homopolymers (COP). COC is a polymerized product obtained through the addition copolymerization (VAP) of norbornene and ethylene; the other type is the cycloolefin homopolymer (COP), which is a polymerized product obtained by hydrogenation following ring-opening shift polymerization (ROMP) of norbornene monomers. Cycloolefin polymers possess excellent optical properties (high light transmittance, high refractive index, low birefringence), high-temperature resistance (high glass transition temperature), dimensional stability (low water absorption), high strength, chemical resistance, extremely low dielectric loss, and good biocompatibility. They are widely used in fields such as optics, medicine, and semiconductors, showing great market potential. 6POEPOE is an elastomer obtained through the random copolymerization of ethylene and α-olefins (1-butene/1-hexene/1-octene); POE accounts for the largest share in applications within the photovoltaic sector. POE is a high-performance polyolefin thermoplastic elastomer and another key upstream material for EVA-based photovoltaic encapsulants. POE exhibits superior properties compared to EVA, such as resistance to PID (potential-induced degradation), electrical resistivity, and water vapor barrier properties. Benefiting from the increasing penetration rate of bifacial double-glass PV modules and the development of high-power N-type batteries, the proportion of POE encapsulant applications is gradually rising. Shenghong’s 800-ton POE pilot plant is now in operation; the company plans to build another facility with a production capacity of 500,000 tons. Rongsheng Petrochemical has set up an α-olefin plant with a capacity of 350,000 tons and a POE plant with a capacity of 400,000 tons. The leading companies in this sector may undergo reshuffling. The surplus of ethylene forces integrated refining and chemical production facilities to continuously strengthen their supply chains, expand them, and enhance their competitiveness. Thanks to the advantage of having integrated raw material supplies starting from crude oil, any product with market potential or sufficient market demand will see the development of related production lines, which in turn accelerates the process of survival of the fittest within the chemical industry. There will be changes in the production of bulk chemical products and fine chemicals, as well as in the structure of companies; production will become more concentrated in terms of both product types and scale, and the number of companies will gradually decrease. The existing leading companies will need to restructure and renew themselves, and the entire chemical industry is likely to see significant changes within the next three years. The rapid development in areas such as consumer electronics—including communication equipment, mobile phones, and wearable devices—as well as automotive and home appliance intelligence, is driving a swift increase in demand for new chemical materials. The leading companies producing these growing categories of new chemical materials and monomers will evolve even more rapidly; examples include 18 new energy and new material products derived from ethylene. Fan Hongwei, chairman of Hengli Petrochemical, said that within the framework of full-industry-chain operations, how to maintain a strong competitive edge and identify more new sources of profit are key issues we need to consider. It is necessary to make full use of the advantages of the upstream industry chain, expand and deepen the industry chain around downstream products, in order to establish new competitive advantages. Efforts will be made to steadily expand the production of downstream products and develop a fine chemicals industrial chain. Hengli Petrochemical’s subsidiary, Kanghui New Materials, is the only company in China and the second in the world capable of producing 12-micron silicon-coated release laminated films for lithium-ion batteries on an industrial scale. Hengli Petrochemical is also the only company in China able to mass-produce products meeting the 5DFDY specification. Furthermore, it accounts for over 65% of China’s total domestic production of release base films for MLCCs. Leveraging the integration of refining and chemical processing as a platform, companies can expand both horizontally and vertically, growing stronger in niche markets and achieving integrated development within those sectors. Upon entering such markets, they can quickly become leading players. For instance, the top enterprises in the production of 18 types of new energy and new material products derived from ethylene may very well see changes in ownership or even exit the market. In fact, as early as 2017, Shenghong Petrochemical took advantage of its integrated supply chain to launch a production facility with an annual capacity of 300,000 tons. An additional 750,000 tons of EVA production capacity will begin to be operational by the end of 2024, with full operation achieved by 2025. By then, Shenghong will become the world’s largest supplier of high-end EVA, holding the highest market share in the global photovoltaic-grade EVA market. Thus, Shenghong will rank among the leading EVA manufacturers, and its combination of scale advantages and technical expertise will make it difficult for competitors to catch up. The number of existing chemical industry hubs and industrial parks in provinces with strong chemical industries in China will continue to decline gradually; more than 80 chemical parks in Shandong may even see their numbers reduce by half. In areas where chemical enterprises are concentrated, such as Zibo and Dongying, half of these enterprises will also be phased out over time. For an industry, these unprecedented changes on a century-scale are not due to a lack of excellence on your part, but rather because your competitors are too strong. The 18 new energy and new material products derived from ethylene are in a stage of industry expansion, with technologies and processes still evolving; an appropriate upstream and downstream layout can help the leading enterprises maintain their competitive advantages. Such an integrated layout helps to mitigate fluctuations in profits caused by market and supply-demand changes, thereby enhancing a company’s resilience. Given the rapid pace of technological advancement in areas such as new energy batteries, information and communication technologies, and consumer electronics, new requirements are constantly being placed on the properties of specialty chemical materials. These integrated refining and chemical production companies have a better environment for testing new technologies; even if they make mistakes temporarily, other aspects of their operations can provide support.