PP Industry Competition Intensifying on Expansion of Fresh Unit Scale
Preface: China’s PP capacity continued expanding, and the scale of new units was large. The number of production lines with above 500kt/a capacity each increased. Accordingly, the market competition and resource flow saw a large change.
Since the first PP producer, Sinopec Yanshan Petrochemical, has come on stream, China’s PP capacity remains in an upswing. China’s PP industry entered a new round of capacity expansion period in 2019. Private enterprises, represented by refining-chemical integration units and light ends units, emerged in the PP market rapidly.
PP supply rose constantly with a capacity release.
In China, PP capacity expansion sped up from 2019 to now, during which fresh capacity reached 14.75 million mt/a. The average growth rate of capacity was 11% from 2019 to 2022.
Although it is also expansion of capacity, this round of expansion has shown significant changes compared to the past. First, the scale of units increased, mainly relying on large-scale refining and chemical integration projects such as Zhejiang Petroleum & Chemical’s 180k/a unit and Liaoning Bora Petrochemical’s 600kt/a. Second, the focus of capacity deployment shifted towards private enterprises, so their capacity took up a larger proportion of the total PP capacity in China. In terms of region, capacity expansions were concentrated in coastal areas, further alleviating the local supply and demand imbalance.
Between January and August 2023, around 3,100kt/a new capacity was put into use. Therein, about 50% of capacity was released in South China, 1,300kt/a capacity was released in North China and 300kt/a capacity was added in East China. Among new units, crude oil-based PP units and PDH units took a majority.
PP supply structure will change again with continuous capacity increase.
It is predicted that China’s PP capacity will continue rising in the next five years, during which newly added capacity may reach 17 million mt/a. Accordingly, the overall PP supply pressure will further grow in the future.
According to SCI’s research, China’s PP capacity will continue to ramp up, although the growth rate of capacity expansion may slow down in the future. It is estimated that by 2027, China’s domestic PP capacity will exceed 50 million mt/a, further increasing the supply pressure on the market. However, with the further release of capacity, the changes in the supply side will become more apparent. Firstly, the scale of capacity release continues to increase, leading to fiercer competition among producers. Secondly, the release of capacity is concentrated in specific regions, leading to a reconfiguration of domestic supply circulation.
According to SCI’s monitoring of capacity in the past five years and the next five years, the phenomenon that the PP plant scale is enlarged increases gradually. The proportion of units with capacity of more than 500kt/a is expected to gradually increase from 22% in 2022 to 27% in 2027.
The deployment of large-scale units has significant advantages market influence and market share. For example, Zhejiang Petroleum & Chemical, which currently has the largest PP capacity in China at 1.8 million mt/a, and Oriental Energy with capacity of 1.6 million mt/a, have impacted the PP market notably. This has particularly affected other local companies in East China and squeezed the market share of Sinopec enterprises.
In the next five years, new capacity will likely be intensive in three coastal regions. It is expected that the capacity in South China will account for the largest proportion of about 28% in 2027, followed by North China and East China. That will enrich local resources and squeeze outside resources, changing the flow of goods.
Three coastal regions have extensive capacity releases in recent years, which alleviated the imbalance of supply and demand and changed the pattern of goods flowing. For example, capacity release was intensive in South China in 2023, especially with 1,000kt/a capacity release in Q1, which expanded the raffia resources in South China and subdued the raffia supply from Northwest China. It is predicted that significant capacity will likely be released in South China, East China, and North China, motivating the trading backed by large consumers and convenient transportation. However, the goods outflow pattern in Northwest China and Northeast China will likely be changed. Enterprises in Northwest China and Northeast China need to enter other regions with lower-priced or superior products, which aggravates their competition pressure.
With capacity expansion, competition within the industry has intensified, and producers have been constantly seeking ways out, including upgrading the product structure and changing sales strategies. To match the upgrading of downstream demand, producers enhanced research and development and output intensity of high-end differentiated products, further meeting the domestic need for high-end special materials. Meanwhile, they focused on the research and development of high-end grades produced by Japan and South Korea, such as high-MFR copolymer and pipe materials, which reduced the PP import dependence degree in China. Moreover, producers adjusted sales strategies, including regional configurations, and gathered advantaged products to sell within regions. That strengthened the regional influence of advantageable products, and further enhanced the competitiveness of enterprises and their products in the industry.
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