Analysis on Impact of H2, 2024 New PE Capacity on North China
Keywords: new capacity, demand
Introduction: China’s PE capacity has seen continuous growth in recent years, mainly in East China and South China, while the capacity expansion in North China has slowed down. However, Shandong Yulong Island Refining and Chemical Integration Project and Wanhua Chemical Group are expected to bring new units online, which is envisaged to make North China the region with the largest proportion of capacity and may transform it from a supply inflow region to an outflow area. Meanwhile, producers may be more willing to invest in metallocene and LLDPE.
I. Commissioning of Units to Boost Capacity Growth in North China
Due to the lower growth rate of capacity compared with that in East China and South China, the proportion of capacity in North China declined year by year in the past five years. In 2023, with the commissioning of units at PetroChina Guangdong Petrochemical and Sinopec Hainan Refining and Chemical Company, the PE capacity in South China surpassed that in North China, ranking third, while Northwest China and East China remained in the top two positions. In 2024, the commissioning of the unit at Ningxia Baofeng Energy Group Phase III further reduced the proportion of capacity in North China to 17.14%, a decrease of 1.01 percentage points compared to 2019. However, the capacity in North China witnessed notable expansion actually, which increased by 56.36% from H1 of 2019 to 5,410kt/a in H1 of 2024.
The capacity release in North China concentrates in Shandong, Beijing, Tianjin and Inner Mongolia, with the capacity in Shandong accounting for the largest proportion, accounting for about 48%, followed by Inner Mongolia, accounting for about 29%. Many producers are located in North China, including large refining and chemical enterprises such as Sinopec Qilu Petrochemical, Wanhua Chemical Group (Yantai), a certain petrochemical enterprise in Shandong, Shandong Dongming Petrochemical Group, Shenhua Baotou Coal Chemical, Inner Mongolia China Coal Mengda New Energy and Chemical, Zhongtian Hechuang Energy, Jiutai Energy Group, Sinopec SABIC Tianjin Petrochemical and Sinopec Yanshan Petrochemical.
In H2 of 2024, five new producers are planned to be added in North China, with the total capacity of 1,150kt/a. If the new capacity is released as planned, the capacity in North China will surpass that in Northwest China, ranking first in the country, and Shandong Yulong Island Refining and Chemical Integration Project will be the largest producer in North China.
H2, 2024 China PE Capacity Expansion Schedule
II. Promoting Development of High-End New Materials and Optimizing Product Structure
The newly added units in H2 of 2024 are expected to cover a comprehensive range of product varieties. Shandong Yulong Island Refining and Chemical Integration Project itself may cover LDPE, HDPE, LLDPE and FDPE units, as well as UHMWPE units, which is positive for optimizing the regional industrial layout and accelerating the adjustment and upgrading of the industrial structure. At the same time, as the largest ethylene unit in the country, the commissioning of Yulong Island Petrochemical will likely alleviate the shortage of ethylene in North China and provide a sufficient material basis for the development of high-end new materials industries in the later stage.
As for the PE product structure in North China, the proportion of each variety of capacity is basically stable. However, the proportion of LLDPE output has increased significantly. This is mainly due to the decline in the prices of some HDPE varieties in recent years, narrowing producers’ profits and affecting their production enthusiasm. Consequently, some producers have switched their FDPE units from producing HDPE to LLDPE. What’s more, mLLDPE has become a focal point of research, development, production, and promotion for domestic and foreign petrochemical enterprises and research institutes, leading to increased production scheduling of such products by producers. Therefore, despite an increase in the proportion of HDPE capacity, the proportion of HDPE output has declined. If units at Shandong Jincheng Petrochemical Group and Shandong Yulong Island Refining and Chemical are put into operation in the future, other producers may further increase their willingness to invest in the production of mLLDPE and LLDPE. Regarding LDPE, North China has not added new capacity for many years, and only Sinopec Qilu Petrochemical, Sinopec Yanshan Petrochemical and Zhongtian Hechuang Energy are involved in the production of LDPE. Their output and prices are significantly affected by unit maintenance. The commissioning of Shandong Yulong Island Refining and Chemical Integration Project and Wanhua Chemical Group (Yantai) (Phase II) may contribute to stable output and prices of LDPE in North China.
In terms of trade flow, North China is one of the main destinations due to the concentration of plastic manufacturing industries in Shandong, Tianjin and Hebei. In recent years, with the intensive commissioning of capacity, the types of resources in North China become increasingly diverse, mainly sourced from Northwest China and Northeast China. Later, the commissioning of units in North China may intensify competition between out-sourced resources and local resources. It is expected that North China may transition from being an inflow region to being an outflow region by then, and market price competition will likely become more intense. Taking LLDPE for stretch film in Linyi as an example, in the past, the use of naphtha-based and coal-based 7042 products was mixed. However, after the commissioning of the unit at Shandong Shouguang Luqing Petrochemical, due to its convenient logistics, stable product scheduling and quality, many downstream enterprises have switched to using Luqing Petrochemical’s LLDPE. It is expected that after the commissioning of Shandong Yulong Island Refining and Chemical Integration Project, it may form similar advantages with Luqing Petrochemical, further reducing the out-sourced resources in North China.
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