Polyethylene possesses good low-temperature resistance and chemical stability, and can be processed through blow molding, extrusion, and injection molding. Throughout its entire life cycle of production, processing, application, and recycling, it's a relatively environmentally friendly and energy-saving material, with an excellent cost-performance ratio. The downstream products mainly include film, hollow containers, pipes, injection-molded products, etc., and are widely used in various aspects of the national economy such as packaging, agriculture, communication, construction, and electronics. The development has been very rapid.

    In the past decade, the global demand for polyethylene has grown by nearly half, reaching 103 million tons in 2019. Driven by demand, polyethylene products will develop in the direction of high-end, differentiation, and customization. Currently, the global economic downturn risks are increasing further, and China's polyethylene industry faces challenges such as surging production capacity, serious product homogenization, and weak innovation capabilities. Although the space for demand growth is still relatively large, the impact of low-cost or high-tech imported products on the market cannot be underestimated, and enhancing technological innovation ability is urgent.

Global Polyethylene Industry Development Trends

█ From the Perspective of the Macro Economic Environment for Industry Development

    In the past year, affected by factors such as the China-U.S. trade dispute and geopolitical tensions, the global economy has continued to follow a sluggish growth trend. The widespread impact of the COVID-19 pandemic since the beginning of this year has added to the global economic woes. On February 22, the Managing Director of the International Monetary Fund made a statement at the G20 Finance Ministers and Central Bank Governors Meeting in Riyadh, reducing the global economic growth rate for 2020 to 3.2%, a 0.1 percentage point reduction from the “World Economic Outlook” released on January 20; the growth rate of China's economy was reduced by 0.4 percentage points, falling to 5.6%. Bloomberg News published an article on March 6 titled "The U.S. May Already Be in a Recession," stating that the longest economic expansion in U.S. history might have already ended. Both developed and developing economies are experiencing significant impacts from the COVID-19 pandemic, further increasing the risk of a global economic downturn.

█ From the Perspective of Resource Conditions for Industry Development

    The U.S. Energy Information Administration's "Short-Term Energy Outlook" released in January showed that for the first time since 2011, the global demand for oil has fallen to below 1 million barrels per day (850,000 barrels). Meanwhile, U.S. crude oil production increased by approximately 1.3 million barrels per day, outpacing global crude oil demand, putting pressure on the global crude oil market. As a result, the price of crude oil fell in 2019, with the average price of Brent crude at $64.2 per barrel, a decrease of 10.5% from 2018. Since the beginning of this year, the price of crude oil has dropped below $35 per barrel, with Brent crude hitting a low point of $33.22 per barrel.

    Overall, factors such as increasing macroeconomic risks, weak demand, complex geopolitical situations, steady growth in U.S. crude oil production, inventory increases, and pipeline investments have contributed to frequent fluctuations in oil prices, with a higher likelihood of a downward trend. Several organizations, including the EIA, predict that crude oil prices will continue to operate at a medium to low level in the coming years.

    From the Perspective of the Feedstock of the Polyethylene Industry Chain - Ethylene Source

    Steam cracking remains the mainstream process for ethylene production, with cracking ethylene from naphtha, ethane, and liquefied petroleum gas (LPG) accounting for 42.6%, 38.3%, and 14.1% of total ethylene supply, respectively. Ethylene from coal (methanol) to olefin plants accounts for about 3%, with the main production facilities located in China. Additionally, about 2% of ethylene comes from devices for direct crude oil cracking, catalytic thermal cracking of heavy oil, and dehydration of ethanol to produce ethylene.

    Different regions around the world use different raw materials and different production routes, leading to significant differences in the production costs of ethylene. With low oil prices, the cash cost gap between naphtha cracking for ethylene in Asia and Europe and ethane cracking for ethylene in North America and the Middle East narrows, but the cost of ethane cracking for ethylene in the Middle East and North America still holds an absolute advantage. Furthermore, under low oil prices, the cost of ethylene from China's coal (methanol) to olefin plants is relatively high, especially the cost of ethylene production from methanol to olefin plants, reaching around $1300/ton.

█ From the Perspective of the Product End of the Polyethylene Industry Chain

    With the increase in market supply, economic development, and the growing awareness of quality of life and environmental protection, the market will have higher, newer, and more refined requirements for product quality, variety, and functionality. Thin films are developing towards better mechanical and optical properties, such as BOPE, with tensile strength increased by 210 times, puncture strength increased by 25 times, and haze reduced by 30%~85%. Hollow containers are developing towards higher melt strength, better resistance to environmental stress cracking, and larger container size. Pipes are developing towards higher pressure resistance, better scratch resistance, crack resistance, and better high-temperature performance, such as PE100 RC, PE100 RT, PE100 RCT, etc. Driven by demand, polyethylene products will develop towards high-end, differentiated, and customized directions, and metallocene polyethylene, ultra-high molecular weight polyethylene, very low-density polyethylene, ethylene-vinyl alcohol copolymer resins, etc., will be the focus of research and development for the present and foreseeable future.

█ From the Perspective of Global Polyethylene Market Supply and Demand

    In 2019, the world's total polyethylene capacity was about 123 million tons, mainly concentrated in Northeast Asia, North America, and the Middle East, accounting for 25.3%, 23.2%, and 20.4% of the world, respectively. The demand was about 103 million tons, with the main consumption areas being Northeast Asia, North America, and Western Europe, accounting for 36.4%, 16.7%, and 12.8% of the world, respectively. The Middle East and North America are the main net export regions for global polyethylene, accounting for 60.4% and 29.2% of total trade volume, respectively; Northeast Asia is the main net import region, accounting for 56.2% of the global total trade volume. It is expected that in the next 10 years, the annual growth rate of capacity (about 4.1%) will be greater than the demand growth rate (about 3.3%), leading to a decline in the operating rate of facilities and a market supply exceeding demand.

    China's Polyethylene Industry Development Status and Facing Situations

In 2019, China's polyethylene capacity, production, net import volume, and consumption were 19.05 million tons, 16.06 million tons, 16.10 million tons, and 32.16 million tons, respectively, making it the largest polyethylene consumer globally, accounting for 31% of global consumption. Despite the slowdown in growth due to a larger base and economic slowdown, China's market potential remains significant. Currently, China's per capita polyethylene consumption is about 23 kg/person, a large gap compared to the consumption level of around 40 kg/person in major developed countries and regions like the USA, Western Europe, South Korea, and Japan. There's still substantial room for demand growth, and it remains an opportunity phase for the development of the polyethylene industry, but China's polyethylene industry also faces many challenges.

█ Challenge One: Rapid growth in capacity, increased market competition, declining industry profits.

     With the full commissioning of Zhejiang Petrochemical and Hengli Petrochemical at the beginning of the year, China's polyethylene market has formed a multi-entity interactive supply pattern with state-owned enterprises like Sinopec, PetroChina, joint ventures like Zhongsha (Tianjin) Petrochemical, CNOOC Shell, and private refining and chemical companies like Zhejiang Petrochemical, coal chemical companies, and imported products. As new projects come into production in the future, capacity will continue to grow rapidly, with an expected 30 million tons of polyethylene capacity by 2023 in China. Overall, the annual growth rate of capacity, at 11.8%, far exceeds the annual demand growth rate of 5.7%, leading to intense market competition. Enormous expected new production capacity, coupled with economic slowdown and lower-than-expected downstream demand growth, leads to continuous decline in polyethylene product prices, resulting in a decline in industry profits.

█ Challenge Two: Serious product homogenization, high-end products heavily reliant on imports.

    As China's new capacity comes into production, product homogenization will intensify, and competition will become fiercer, turning the Chinese polyethylene market into a red sea of homogeneous products. At the same time, due to lack of R&D capabilities and technology owners not transferring technology, some high-end polyethylene products have to rely on imports. In 2018, imports of high-end polyethylene such as ethylene-hexene copolyethylene, ethylene-octene copolyethylene, ethylene-vinyl acetate copolymer (EVA), metallocene polyethylene, ultra-high molecular weight polyethylene, ethylene-vinyl alcohol copolymer (EVOH), etc., were nearly 6 million tons, with a self-sufficiency rate of less than 40%, accounting for more than 40% of the total polyethylene imports.

█ Challenge Three: The continued impact of low-cost imported products on China's polyethylene market.

    The resource endowment in the Middle East makes it the lowest-cost region for polyethylene production globally. China imports a large amount of polyethylene from the Middle East every year; in 2018, the import volume was 740.4 million tons, accounting for 53.7% of China's total polyethylene imports. The future impact of the Middle East on China's polyethylene market will continue. The U.S. shale gas revolution has empowered the revival of the American chemical industry, becoming a global low-cost chemical production base, significantly enhancing the competitiveness of American polyethylene products. By 2023, nearly 6.5 million tons of additional polyethylene capacity is expected, accounting for about 1/3 of the global increase. Since the U.S. polyethylene market is already saturated, manufacturers must export to solve domestic oversupply, with China being the largest export target market.

█ Challenge Four: Dependence on imported technology, lack of innovation capability.

    In 2019, China's polyethylene capacity was 19.05 million tons, of which 46% used Univation's Unipol gas-phase process, and 17% used LyondellBasell's slurry process, with a technology dependence exceeding 90%. The industry is still in a period of catching up through the introduction of technology and large-scale investment construction. Funds for technology are mainly spent on purchasing technology, with self R&D mainly restricted to assimilation and absorption. In this situation, the internal and external innovation system has not yet formed, and products are concentrated in the mid-low-end field.

█ Challenge Five: Industry standards and policies have raised higher requirements for product performance and the production process.

    The State Council's "13th Five-Year National Science and Technology Innovation Plan" issued in 2016 and "Made in China 2025" issued in 2015 increasingly emphasize the development of medical raw materials, calling for the improvement of standards for medical-grade raw materials. 

    On May 1, 2018, the mandatory national standard "Polyethylene Blow Molding Agricultural Ground Cover Film" was implemented. This revision increased the film thickness from 0.008mm to 0.010mm. At the same time, the mechanical performance indicators were modified to prevent companies from adding too much recycled material to increase thickness, thereby reducing product quality and recyclability.

    In 2018, the European Union passed a plastic ban, stating that the use of disposable plastic products would be completely banned from 2021. Incomplete statistics show that more than 60 countries worldwide have introduced policies or laws restricting plastic use, promoting the use of biodegradable materials through plastic bag taxes, voluntary agreements, and outright bans.

    China's Jilin Province and Hainan Province also issued regulatory documents in 2015 and 2019, respectively, on the "Comprehensive Prohibition of the Production, Sale, and Use of Non-Biodegradable Disposable Plastic Products." These industry standards and regulations have raised higher requirements for polyethylene products' performance and production processes.

Thoughts on the Development of China's Polyethylene Industry

    In summary, China's net import of polyethylene is as high as 16.10 million tons. This is not only due to insufficient domestic production but also to the low technological level, making domestic products unable to replace imports. Additionally, the cost-performance ratio of imported products is high. In this era of market globalization, gaining a foothold in a fiercely competitive market requires a long-term and sustainable competitive advantage. This advantage manifests itself in the high efficiency of production, high quality and low-cost products, and high customer satisfaction.

    So how can high efficiency, high quality, and low cost be achieved? Through intelligent scheduling, smart logistics, digital production, advancements in production technology, improving device operation levels, managing with constant quality models, reducing raw material costs, and maximizing efficiency in all links... In recent years, China's polyethylene industry has focused on enhancing competitiveness through these measures. However, these practices still fall short of meeting the growing material and cultural needs of the people and the demands for a better life, or achieving high customer satisfaction.

    Customized production with a user-centric approach is the only way to achieve high customer satisfaction. That is, meeting diverse customer needs while reducing production costs, increasing efficiency, and ensuring product quality. This calls for a strong capacity for technological innovation in China's polyethylene industry. It necessitates that both the national and enterprise levels pay more attention to the major technological challenges facing the development of the polyethylene industry, such as over 90% dependence on foreign production technology and over 60% reliance on foreign high-end products.

Author: Wang Hongqiu, Petrochemical Research Institute, China National Petroleum Corporation