Market outlook: China polyolefins market offers potential

Global players should pay attention to China’s growing market for polyolefins. Demand and production are both set to rise, offering opportunities

China’s demand growth for polyethylene (PE) and polypropylene (PP) may have slowed down in recent years, but these markets are still attracting a lot of attention from global players. Major capacity expansions of these products in recent years and China’s large population promises significant opportunities for both resin suppliers and end-users.

Polymers for food packaging is a major growth market in China Copyright: Rex Features

China’s PE capacity rose at an average annual rate of 10.7% from 2007 to 2013, with annual capacity rising to 12.885m tonnes in 2013 from 7.115m tonnes in 2007. According to ICIS Chemease data, China’s total annual capacity is expected to increase to 15.385m tonnes in 2017.

Having expanded at an average annual growth rate of 15.3% in 2007-2013, China’s domestic PP capacity was estimated at 12.83m tonnes in 2013, up from 7.19m tonnes in 2007. The average annual capacity growth rate in 2007-2013 was estimated at 14.8%.

Over 95% of PE capacity in China is integrated with ethylene crackers. Sinopec and PetroChina are the two major producers, with their production accounting for the whole supply chain, including feedstock, PE and joint cracking products.

The development of shale gas as a competitive feedstock in the US petrochemical industry has inspired China’s PP industry to improve competitiveness through feedstock diversification. A number of coal-to-olefins (CTO) and propane dehydrogenation (PDH) plants are scheduled to be built over the next five years. These new plants will be cost-competitive in a high crude oil price scenario.

China’s energy structure features rich coal, lean oil and less gas, and its available coal reserves are about 1,000bn tonnes. Thus, development of CTO technology is in line with this energy structure.

COAL TO OLEFINS
China has become the largest coal producer and consumer in the world, and coal will remain its major energy resource for a long way into the future. Domestic coal prices in China are lower than international prices, and this offers economic benefits to domestic coal producers.

The development of the coal chemical industry will turn coal into chemical products with high added value and this will therefore help coal producers increase economic benefits.

The commissioning of Shenhua Baotou Coal Chemical’s CTO unit in 2010 indicated the success of the coal-to-methanol technology in China, and paved the way for the development of coal to basic organic chemical production. Technology has driven the development of the China coal chemical industry, which also has strategic significance in easing its petroleum shortages.

CTO, PDH PROJECTS
Although naphtha-based PE will dominate the domestic market in the short term, coal/methanol-based PE capacity is expected to account for 11% of the China’s total PE capacity by 2017 because of its high returns. PDH capacity will account for 9.3% of China’s total PP capacity by 2017, according to ICIS Chemease.

However, there is scepticism about the viability of the upcoming CTO and PDH projects because of challenges such as environmental concerns, the availability of capital and the supply of coal and propane.

A number of local producers have plans to build several CTO plants in China over the next five years. China’s CTO capacity is expected to account for 11.1% of its total PE capacity in 2017, up from 3.0% in 2012.

IMPORT SITUATION
China’s PE imports stood at 8.816m tonnes in 2013, which accounted for around 43.31% of its total demand. China has become a major polyolefins market in the world as other key markets are still reeling from the impact of the uncertain global economic recovery.

China still relies on imports as its domestic facilities cannot meet its growing demand. Imports are expected to account for 37.3% of China’s total PE demand by 2017.

The global PP market outlook has been clouded by uncertainty in the global economy since the 2008 global financial crisis. Amid the uncertainty, China plays an increasingly important role as the world’s production base and major market.

China is expected to import more PP resins in the coming years, with the bulk of the supply coming from the Middle East, where PP capacity expansion is expected to be driven by competitive feedstock costs.

CHINA PE, PP DEMAND GROWTH
China’s apparent PE demand was at 20.355m tonnes in 2013, up by 13.2% year on year, and its apparent PP demand was at 18.179m tonnes in 2013, up by 9.6% year on year. China plays an important role in the global PE and PP markets, with an increasing number of global suppliers vying for a share of the market.

China’s key PE applications are plastics films, household wares and plastics packaging material. Margins in these application sectors are thin because of fierce competition. Hence, most plastics processing factories are located close to large population areas.

Some plastics processing producers moved to southwest China and central China in recent years because of higher wages, rental costs and taxes in coastal areas. The plastics processing sector in south China has shrunk significantly because Chinese exporters have suffered from the appreciation of the Chinese currency and reduced export orders.

East China has been the largest PE market in the country for many years, with PE consumption increasing rapidly from 2005. Consumption was estimated at around 6.57m tonnes in 2012 (36% of total national consumption).

South China is the second largest PE market in the country. Consumption in south China was estimated at around 4.90m tonnes in 2012 (27% of total national consumption).

PE consumption in north China was estimated at 2.47m tonnes in 2012 (14% of total national consumption). PE applications in north China are mainly agricultural films and plastic pipes. Most agricultural film producers are in north China, particularly in Shandong, Hebei and Henan. Shandong has one of the three largest vegetable farms in the world.

The agricultural films industry in north China will produce more medium- and high-quality products, optimise its industry structure and improve its product quality, as the country’s agricultural sector will increasingly move towards environmentally friendly, energy-saving and functional agricultural film products.

As a result of urbanisation, plastic pipe production will become a key industry in north China. For example, development of the Bohai Sea region will create a large demand for various types of plastic pipes.

WIDER PP APPLICATIONS
PP consumption in China has continued to increase with a range of new applications.

The new applications in PP emphasise four key property requirements: high melt strength, high crystallisation, high-melt flow rate and high transparency. PP resins with such properties are replacing other resins in many applications.

Local producers, including Shanghai Petrochemical, Shanghai Secco and Yanshan Petrochemical, have developed the capability to produce PP resins with high transparency properties. PP producers in China are incapable of producing resins with high melt strength or high crystallisation because of a lack of technical knowledge.

From the ICIS China PP and PE Annual Study
Information used to produce this article was taken from the ICIS China PP and PE annual study featuring in-depth analysis and forecasts of China’s PE and PP markets (2013-2017). China is the largest petrochemical import market in Asia, offering major sales opportunities for global exporters. China’s supply, demand and price movements have a significant impact on global markets. It is vital for players within and outside of China to keep track of the country’s activity.

ICIS has addressed this need by producing two new studies covering China’s PE and PP markets. Each study gives you deeper insights on domestic market developments and how they impact your business plans by providing you with data and analysis of price trends, as well as supply and demand, cost and arbitrage, and forecast data up to 2017. Key topics covered include:

Existing and new capacities, output analysis and forecast from 2013-2017

Cost analysis of coal-to-olefins production

Demand trends and emerging demand 
sectors

Top 10 polyolefins importers and 
consumers

Commentary on China’s governing policies

Enquire about the annual studies at 
www.icis.com/requestchina