“Anti-Involution” Impact on BD Industry
Introduction: On July 21, the butadiene price in the Shandong market rose by 3.15%, with the increase significantly wider than in previous days. This bullish market atmosphere mainly benefited from China’s Ministry of Industry and Information Technology (MIIT) press conference on July 18, which revealed plans for a new round of outdated capacity elimination. However, details on classifying outdated capacity remain unclear currently. Furthermore, many new butadiene units are still scheduled for start-up later. Therefore, the overall impact of this policy on the butadiene industry will possibly be relatively limited. It may mainly manifest as periodic market influence.
Event Background: On July 1, 2025, the Chinese president chaired the sixth meeting of the Central Commission for Financial and Economic Affairs. He emphasized deepening the construction of a unified national market. Key measures highlighted included: regulating disorderly low-price competition among enterprises through legal frameworks, guiding enterprises to enhance product quality, and promoting the orderly exit of outdated capacity.
On July 18, the State Council Information Office hosted a press conference. During the event, a senior official from the MIIT made a key announcement. The official revealed that China would launch a new round of stabilizing growth initiatives targeting ten key industries. These included steel, non-ferrous metals, petrochemicals, and building materials, among others. These initiatives aimed to promote industrial restructuring, optimize supply structures, and phase out outdated capacity. The official noted that detailed implementation plans would be unveiled progressively in the coming days.
Following the MIIT press conference, the market began identifying outdated capacity in industries like steel, non-ferrous metals, petrochemicals, and building materials. Nonetheless, the definition of outdated capacity is not yet fully determined. The Hazardous Chemicals Supervision Department of the Ministry of Emergency Management drafted the “Chemical Unit Aging Assessment Method (Draft for Comment)” and its explanation. These are now open for public comment. For the current butadiene industry, some units have been operating for over 20 years. Yet, policy specifics are not clear. Even after the policy becomes clear, it will possibly be difficult to implement immediately. Additionally, many new units are planned to go into operation later. Consequently, the short-term substantive impact on the butadiene industry is likely to be relatively limited. Nevertheless, market sentiment remained relatively unchanged in a short time. Related product prices are expected to continue fluctuating upward, potentially boosting the spot market atmosphere for butadiene.
The butadiene industry has some units that have been in operation for a long time. Meanwhile, there are also new capacity plans. China’s capacity continues to increase.
Currently, according to SCI, among operating units, those with 20 years or more of operation total 635kt of capacity, accounting for approximately 9% of China’s total capacity. Some other units started before 2005, but underwent upgrades around 2005. Therefore, how to define aged capacity precisely still requires guidance from the draft “Chemical Unit Aging Assessment Method”.
Moreover, for butadiene units with relatively long commissioning periods, most already have new capacity plans in place. Additional capacity may be added later to supplement these units. In addition to the newly added capacity mentioned above, over 2,000kt of new butadiene capacity is expected to come online in the next five years. These include projects such as PetroChina Jilin Petrochemical Phase II, Sinopec Qilu Company Shandong Oil Refining Upgrading Project, Huajin Aramco Petrochemical, and others. On the whole, China’s butadiene capacity is estimated to maintain an increasing trend. China's butadiene capacity may reach the 10-million-ton level by 2029.
Capacity adjustment takes time, but players’ sentiment may still support butadiene in a short period.
Eliminating old capacity and releasing new capacity cannot be achieved overnight. In the early stages of policy release, the market is prone to sentiment influence. Price adjustment amplitudes can easily be magnified. Looking at recent butadiene market performance, after the policy was initially revealed, the butadiene price in the Shandong market increased by RMB 350/mt on July 21. It reached RMB 9,800-9,850/mt, with the 3.15% gain significantly wider than previous days. Current butadiene fundamentals are passable. Supply-side pressure is not high, and downstream operating rates are relatively stable. With fundamentals providing some support, coupled with positive macro factors, butadiene prices may keep fluctuating at high levels this week. However, the increase in butadiene prices still requires attention to the rise of downstream product prices in tandem.
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