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In recent years, China’s petrochemical industry has remained in a downturn, amid continuous capacity expansion and high oil prices. In 2025, the petrochemical industry will once again see a record level of new production capacity being brought online. However, consumption is expected to decline due to high levels of uncertainty; as a result, the industry is actively adjusting its raw material and supply structures, diversifying its export markets and developing new trade channels. It is also making use of the policy incentives aimed at stabilizing the market in order to overcome these challenges. The pace of capacity expansion in recent years has broken away from the traditional 5–7 year investment cycle. Meanwhile, influenced by factors such as a declining demographic dividend, slowing growth in investment and exports, and the development of a circular economy, China’s petrochemical industry will struggle to find a new balance in demand during the 15th Five-Year Plan period. It will likely take longer to address the issue of overcapacity, and the industry as a whole will experience a prolonged period of downturn followed by an ‘L-shaped’ recovery, characterized by eight specific trends. The text and charts in this edition were provided by Lu Xiaodong, Sui Jinyi, Xiao Bing, Li Chao, Cui Jiayao, Wang Limin, Zhao Rui, and Shi Xiangning from the Sinopec Economic and Technical Research Institute. 1. Capacity expansion has entered a phase of \"updated elimination\": During the 14th Five-Year Plan period, China’s new ethylene production capacity will exceed 29 million tons per year, while the new PX (p-xylene) production capacity will be around 16 million tons per year. By 2025, China’s ethylene production capacity is expected to rise to 64 million tons per year, while its PX production capacity is set to increase to 42.38 million tons per year. “During the 15th Five-Year Plan period, the additional production capacity for ethylene and PX is expected to be 25 million tons per year and 9.5 million tons per year, respectively. At present, as the self-sufficiency rate of domestic petrochemical products continues to rise, there is a persistent overcapacity for certain products, and the profitability of some sectors remains low. Phasing out older production facilities and building new ones of larger scale is one of the main strategies for companies with a large number of existing facilities to adapt to market-driven competition. According to incomplete statistics, during the 14th Five-Year Plan period, China shut down an ethylene production capacity of around 1 million tons per year, while existing companies built new ethylene production capacities of 2.4 million tons per year ； “During the 15th Five-Year Plan period, 3.5 million tons per year of ethylene production capacity will be shut down, while new ethylene production capacity of 5.4 million tons per year will be established by existing enterprises. Through this mechanism of \"updated elimination,\" by the end of the 15th Five-Year Plan period, the average capacity of ethylene production facilities in China will increase from the current 800,000 tons per year to 1 million tons per year, while the average capacity of PX production facilities will rise from 1.1 million tons per year to 1.25 million tons per year, thereby enhancing their competitiveness significantly. 2. “Oil conversion” and “de-integration” are accelerating industry transformation; as the production of refined oil reaches its peak, China’s refining industry is beginning to shift towards the chemical sector. Despite the period of low profitability in recent years, in the medium to long term, the drive and trend toward transforming refining into the chemical industry remain unchanged. It is expected that during the 15th Five-Year Plan period, the yield of light oil from refining and chemical processes in China will increase from the current 17%~18% to 23%~24%. While various catalytic cracking and hydrocracking units will boost the production of chemical raw materials, they will also increase the output of various by-product chemicals (such as C3 and C4 compounds and aromatics). The yield of chemical products from refineries will rise from around 15% at present to 19%. Furthermore, processes such as catalytic cracking of various types of heavy oil and the direct conversion of crude oil into chemicals not only exhaust crude oil resources to the fullest extent possible but also promote the transformation of the refining industry into the chemical industry. To mitigate the impact of the peak in refined oil production on investments in the petrochemical industry, an increasing number of private enterprises are choosing a \"non-integrated\" approach, with propane dehydrogenation (PDH) projects being the most common example. In recent years, driven by factors such as demand and policy, PDH units in China have experienced explosive growth. From 2020 to 2024, China added nearly 20 million tons per year of new PDH capacity, accounting for over 50% of the new propylene production capacity ； It is expected that more than 10 million tons per year of PDH capacity will come online by 2030. In recent years, ethane cracking projects in China have also developed rapidly, including those at CNPC’s Tarim and Changqing facilities, the gas cracking operations at Huatai Shengfu Refinery, as well as imported ethane cracking projects at Xinpu Chemical and Weixing Chemical. By 2024, the share of ethane cracking capacity in China’s ethylene production route had risen to around 8%. “During the 15th Five-Year Plan period, over 6 million tons per year of ethane cracking capacity will still be brought online, with many more such projects in the planning stage. Overall, during the 15th Five-Year Plan period, new \"oil conversion\" projects are replacing traditional integrated refining and chemical projects as the main driver for capacity expansion. It is estimated that by 2030, the proportion of olefin production capacity in China that is not integrated will rise from around 22% at present to over 25%. “The developments in \"oil conversion\" and \"de-integration\" provide diverse pathways for the industry, but they also exacerbate overcapacity pressures in industrial chains such as that of propylene and lead to a reshaping of the competitive landscape among manufacturing facilities. 3. The green transformation of the industry is imperative; low-carbon development and green transformation in the petrochemical industry are an inevitable trend. In 2022, the \"Guiding Opinions on Promoting High-Quality Development of the Petrochemical Industry during the 14th Five-Year Plan Period,\" issued by six departments including the Ministry of Industry and Information Technology, explicitly called for petrochemical enterprises to make use of green hydrogen in a manner that suits local conditions, in a rational and orderly way, and to advance pilot projects that integrate refining, coal chemical processing with green electricity and green hydrogen. Especially in coal chemical projects, there is a common issue during the production process of an excess of carbon and a deficiency of hydrogen, as well as a mismatch in the carbon-to-hydrogen ratio; consequently, carbon emissions are high. Therefore, the integration of coal chemistry with green new energy industries such as wind power and photovoltaics will become one of the main approaches for capacity upgrading and significant carbon reduction during the 15th Five-Year Plan period. Theoretically, by considering a complete replacement with green hydrogen without altering the production process, it is expected that the amount of coal used as raw material will be significantly reduced, and carbon emissions during production are expected to drop by more than 50%. At present, the new coal-to-olefins projects planned by enterprises such as Ningxia Baofeng, China National Coal Group, and Sinopec all achieve effective integration of green hydrogen and coal chemical processing. However, considering factors such as the stability of green hydrogen supply, the scale of renewable energy, and costs, during the 15th Five-Year Plan period, production will still mainly rely on green hydrogen production at the ten-thousand-ton level. At the same time, the cost of capturing the high-concentration carbon dioxide produced by coal chemical plants is low, and large-scale CCUS (Carbon Dioxide Capture, Utilization and Storage) projects such as oil displacement and hydrogenation to produce methanol will also serve as effective tools for capacity transformation. 4. Consumption will rely more on new cycles and new channels. During the 15th Five-Year Plan period, China’s total population will begin to decline, as the society moves from a moderate level of aging to a more advanced stage of aging ； China’s urbanization rate is already approaching 70%, and its growth pace will slow down significantly in the future; the expansion and upgrading of the consumer market driven by urbanization will also slow down. At the same time, changes in the external trade environment and the development of a circular economy will further restrict the growth of the traditional petrochemical industry. Against this macroeconomic backdrop, China’s consumer base will rely more on increases in national income, the recovery of industries such as real estate, and the emergence of new industries – in other words, the onset of a new cycle in the national economy. At present, the annual per capita disposable income of residents in our country is 41,314 yuan. The future growth rate of this figure will be closely linked to the performance of the macroeconomy. Given that China’s economic growth rate is expected to remain at around 4%–5% for a long time to come, there is still significant room for an increase in per capita income, and the country is likely to enter the category of high-income countries successfully. In the real estate sector, thanks to a series of supportive policies, there have been signs of modest recovery in real estate markets in some areas by the end of 2024 and early 2025. Most domestic and international institutions expect China’s real estate industry to reach its bottom point between 2025 and 2026, after which it is likely to show a pattern of complex differentiation and a gradual recovery. In the field of emerging industries, China has already achieved significant economic benefits in areas such as wind and solar energy, power batteries, and electric vehicles; this has spurred development in many other industries, including the petrochemical sector. In the future, further breakthroughs will be made in industries such as robotics, the low-altitude economy, 6G, hydrogen energy, and nuclear energy, thereby creating new markets worth trillions of dollars and offering more opportunities for consumption. Regarding new channels, the Belt and Road Initiative has already yielded positive results. In 2024, China’s exports to countries and regions involved in this initiative increased by 9.6% compared to the previous year, which is higher than the overall export growth rate of 7.1%. The share of imports and exports with these countries and regions in China’s total trade exceeded 50% for the first time, reaching 50.3%. In the future, with the implementation of the China-ASEAN Free Trade Area 3.0 version and the development of trade cooperation between China and Latin America as well as Africa, new trade routes will inject new momentum into China’s product consumption market. 5. The petrochemical market will enter a new phase of balanced development after 2030. In summary, against the backdrop of continuous growth in emerging consumption, new industries, and new export markets, China’s annual growth rate for ethylene equivalent consumption is expected to rise to 4%, or even higher. In China, petrochemical production capacity has been expanded on a large scale since 2020, with an average annual increase of over 5 million tons in ethylene production capacity. As the goal of achieving carbon neutrality approaches, the pace of launching new petrochemical projects has accelerated further. It is estimated that by 2030, China’s ethylene production capacity will approach 90 million tons per year, at which point more than 90% of major petrochemical products will face overcapacity. As the pace of capacity expansion has disrupted the traditional 5–7 year investment cycle, the industry is unable to absorb such a large amount of capacity in the short term; as a result, China’s petrochemical industry will inevitably experience a prolonged period of low profits. Meanwhile, with the approach of the deadline for achieving carbon peak targets, enthusiasm for investment in this sector within the country also declines. It is expected that between 2030 and 2035, the scale of planned projects in the domestic market will be much lower than in previous periods, with only 3 to 4 projects. The annual addition of ethylene production capacity will be only 600,000 tons per year, which provides an opportunity to address the excess production capacity from earlier times. “By the end of the 14th Five-Year Plan period, the addition of new PX production capacity in China slowed down significantly due to regulatory measures. It is expected that during the 15th Five-Year Plan period, the average annual increase in PX production capacity will drop from around 5 million tons per year in the previous five-year period to 300,000–400,000 tons per year. Overall, the industry’s investment cycle, policy constraints, and market overcapacity have led to a new stage of development for China’s petrochemical industry after 2030. There is a slowdown in the addition of new production capacity alongside the phasing out of older capacity, while the reduction of overcapacity goes hand in hand with a slowdown in new consumption, and the market will gradually reach a new balance. 6. The room for adjusting the composition of raw materials may narrow. To cope with the sluggish petrochemical market in recent years, many companies have taken active measures to adjust their production and operations, among which low-cost raw materials are the preferred choice. Since the commissioning of China’s first ethane cracking unit in 2019, the production capacity of ethane cracking projects has reached 4.3 million tons per year (including dry gas ethane and ethylene-propylene mixed cracking); this figure is expected to rise to 9.35 million tons per year by around 2030. Companies such as Satellite Petrochemical that are engaged in ethane cracking have become important players in the ethylene market that cannot be ignored, while CNPC will become China’s largest enterprise for producing ethylene from ethane as raw material. From the perspective of actual production costs, it is estimated that the cost of ethane cracking is about 1,000 yuan/ton lower than that of naphtha cracking, offering a significant advantage. However, due to the continuous expansion of U.S. ethane exports in recent years, coupled with a slowdown in natural gas production from the Permian Basin, a key production area for NGLs, ethane prices in the Gulf of Mexico are expected to experience a sharp rise around 2027, reaching around $210 per ton – a significant increase of 45% compared to 2023. Going forward, as export volumes continue to increase and U.S. NGL production approaches its peak, U.S. ethane prices are likely to rise further to $250 per ton. As a result, the price of ethane arriving in our country will reach $580 per ton, reducing the price gap compared to naphtha prices in Northeast Asia from the current $140 per ton to $60 per ton. Coupled with a range of costs and transportation lead time issues related to shipbuilding (chartering), ports, storage tanks, pipelines, etc., the significant advantage of ethane cracking costs is gradually diminishing. Furthermore, since low-cost conversion methods for “oil conversion” are still lacking at present, the naphtha cost for the hydrogenation units in integrated projects is relatively high ； Using diesel components as raw materials for production is not only costly but also generates large amounts of low-value by-products such as ethylene tar ； Technologies such as heavy oil catalytic cracking still face issues including low propylene yield and low utilization rates of by-products, along with high energy consumption ； The use of purchased liquefied gas as a substitute for naphtha as a cracking feedstock is also influenced by the strong upward pressure on the market price of liquefied gas caused by the recent large-scale commissioning of PDH projects. Therefore, overall, China’s petrochemical industry currently lacks effective means to reduce the costs of raw materials, and it is necessary to develop more detailed plans for the efficient use of these materials and for tapping into their potential. 7. There is also a need to be vigilant about the issue of over-supply in new materials. At present, China’s petrochemical industry is in a critical period of transition from old to new drivers of growth. Traditional industries such as real estate, agriculture, home appliances, and gasoline-powered vehicles have largely entered a mature or even declining phase of development. In contrast, strategic emerging industries represented by new energy vehicles and high-end equipment, as well as future industries represented by quantum computers and humanoid robots, will become the key drivers behind the growth in demand for petrochemical products. In particular, high-value new chemical materials such as high-performance resins, high-performance fibers, high-performance membrane materials, and electronic chemicals play a crucial role in this regard. At present, the total demand for new chemical materials in our country is around 44 million tons per year, with a self-sufficiency rate of less than 70%. It is estimated that by 2030, driven by the rapid development of China’s strategic and emerging industries, the total demand for new chemical materials will rise to around 69 million tons per year, with an average annual compound growth rate of 7%, and the self-sufficiency rate will increase to 76%. Since 2021, foreign investment (including Sino-foreign joint ventures) has invested in China to build chemical new material production capacity of over 7 million tons per year, with most of these products being high-performance resins such as engineering plastics and advanced polyolefins. The industrial competitiveness of domestic private enterprises has also continued to improve, with companies such as Wanhua Chemical and Xinhecheng emerging as leaders in their respective sectors. At the same time, however, as high returns attract a large number of companies to enter this sector, some high-end products with large market sizes, including 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 terephthalate-adipate), DINP (diisononyl phthalate), and metallocene polyethylene, are facing the risk of overcapacity as domestic production capacity increases rapidly. According to incomplete statistics, during the 15th Five-Year Plan period, the planned production capacity for EVA in China is expected to exceed 3.4 million tons per year, that for POE to exceed 4.5 million tons per year, for metallocene polyethylene around 6 million tons per year, and for nylon 66 as high as 7 million tons per year. The development of differentiated bulk products faces, on the one hand, the challenges posed by an oversupplied domestic market, as well as low-cost generic and modified materials; on the other hand, it faces the challenges resulting from the emergence of niche markets and the need for customized product development. This requires companies to employ precise production management and continuous investment in research and development to cope with these challenges. 8. The plastic circular economy is entering a new stage of development. Developing a circular economy has become a consensus within the petrochemical industry. Many companies around the world, including ExxonMobil, South Korea’s LG, and Covestro, have embarked on efforts to recycle and reuse plastics. Physical recycling is currently the most common method of plastic recycling in China (accounting for 99%), but the system for recycling waste plastics is not yet perfect; issues such as low efficiency in collecting waste plastics and difficulties in sorting them exist. Currently, China recycles over 20 million tons of waste plastics annually; physical recycling, landfilling, and incineration each account for about 30% of this total. In the future, as the recycling industry for plastic waste becomes more developed, especially with the implementation of the EU’s carbon border tax and various regulations imposed by different countries to limit plastic consumption, and particularly at the fifth Intergovernmental Negotiating Committee meeting (INC-5) for a global plastic treaty in 2024, although no legally binding international instrument regarding plastic pollution was established as planned, negotiations will continue. It is possible that treaties will be reached to restrict plastic production and to impose fees on plastic manufacturers for addressing plastic pollution issues, which would place a heavy burden on such companies. Chemical recycling is also one of the effective methods for the recycling of plastics, but recycling technologies are still in their early stages of development and have not yet been put into large-scale industrial use. Among them, pyrolysis is currently the waste plastic chemical recycling technology with the fastest industrialization progress and the most mature development; it has already been industrially applied both domestically and abroad. SINOPEC Research Institute of Petroleum Processing has independently developed the continuous pyrolysis technology for waste plastics (RPCC), creating a closed loop of \"plastics – waste plastics – olefins – resins – plastics\". In addition, chemical recycling technologies also include catalytic pyrolysis, depolymerization, etc. In the future, as technology continues to advance and processing capabilities improve, chemical recycling is expected to become an important segment within the plastic recycling industry. It is estimated that by 2030, China’s annual plastic recycling volume will increase to 26 million tons, of which the scale of chemical recycling is expected to reach millions of tons. (Source: Sinopec News)