Evolving Market Structure on Intensive HDPE Capacity Expansion
Introduction: To meet the domestic demand, China’s PE capacity expansion has ushered in a peak period since 2019 with large-scale refining and chemical integration and stimulation of domestic demand. The main focus of PE capacity expansion is to increase the HDPE supply and lean towards distributing in consumption areas, continuously changing the market supply pattern.
Under the combined impact of the large-scale refining and chemical integration and boosting domestic demand, a new round of capacity growth peak has started in 2019 to satisfy China’s PE demand. China’s PE capacity increased year by year, with a total of 13,180 kt/a of new capacity added over the past five years, representing a compound growth rate of 11.55%. By 2023, the total PE capacity increased to 31,308kt/a, with a growth rate of 9.06%. The newly added capacity mainly concentrated on HDPE and LLDPE. Specifically, the capacity of HDPE reached 17,085kt/a, accounting for 54.57% of the total PE capacity. HDPE products are widely used in downstream applications including packaging, monofilament, blow molding, injection and pipe. The rapid capacity growth led to a significant increase in supply, intensifying competition among producers.
As for the price trends of various HDPE products in 2023, the most expensive kind was HDPE film during the first half of the year, while the least expensive kind was low MI injection. However, the output of Chinese-made goods, especially HDPE film, increased, so the price of HDPE film showed a decreasing trend after September. In contrast, the price of HDPE low MI injection picked up from its previously low level due to weaker intention to produce this variety among producers. In terms of the annual average price in 2023, there was little difference in price ranges among products. The three products—HDPE pipe, small blow molding and low MI injection—had an average price of roughly RMB 8,350/mt, with a difference of less than RMB 100/mt. HDPE film prices averaged around RMB 8,600/mt, slightly higher than the other three varieties.
Capacity Structure Optimization—Newly Added Capacity Shifting Towards Consumption Areas
Consumption areas saw more capacity expansion as China’s PE industry structure steadily improved year over year, with the capacity in Northwest China, East China and South China leading the way. Many newly added units adopted LyondellBasell’s production technology in recent years, which contributed to the supply of general-purpose materials, and the supply of small blow molding, film, low MI injection and pipe was amplified by the commissioning of HDPE units.
In 2023, the supply volume of Chinese-made HDPE in East China, South China and North China, which were the major consumption regions, ranked top three. The supply volume in North China and East China showed an increasing trend with the commissioning of units at producers such as Wanhua Chemical Group, Shandong Shouguang Luqing Petrochemical, Zhejiang Petroleum & Chemical and Sinopec Zhenhai Refining & Chemical. After the commissioning of units at Sinopec Hainan Refining and PetroChina Guangdong Petrochemical, South China experienced a significant increase in local supply saturation, so the share of supply from PetroChina (including PetroChina Dushanzi Petrochemical, PetroChina Daqing Petrochemical and PetroChina Lanzhou Petrochemical) and coal chemical producers tapered off. Northeast China and Northwest China were net outflow regions. Central China and Southwest China saw limited newly added units in recent years, coupled with boosted domestic demand, PetroChina and coal chemical producers sent somewhat more PE resources to the regions.
Q4 2024 to See Intensive Unit Commissioning with Supply and Demand Structure Envolving
From January to September 2024, the only newly added unit was Ningxia Baofeng Energy Group’s 250kt/a LDPE unit, bringing the total PE capacity to 31,558kt/a. It is expected that Q4 may see intensive unit commissioning, with new units mainly in North China, including plans for 2,550kt/a of HDPE/FDPE capacity. If these units are put into operation as scheduled, the total capacity in North China will surpass that in Northwest China, becoming the region with the largest capacity in China. With further increases in HDPE capacity, the supply and demand structure will continue to evolve, intensifying competition for HDPE products in North China and surrounding areas.
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