China Ethylene Industry 2024: Supply Pressure and Difficulties Ahead

2024: The Domestic Ethylene Industry Faces Significant Losses

Slower Capacity Expansion, Lowest Growth in Recent Years

In 2024, China’s ethylene capacity expansion slowed down, with new production facilities adding only 1.5 million tons per year—one of the lowest increases in recent years. These include the 1.2 million tons per year naphtha cracking unit in Tianjin Nangang and the first phase of Baofeng’s coal-based olefin project. Since most of these units are scheduled to come online by the end of the year, their impact on supply growth will be more apparent in early 2025. China's ethylene output in 2024 is expected to be 47.65 million tons, an increase of 6.6% year-on-year. However, due to financial losses, the average operating rate of domestic naphtha crackers has fallen to around 85%, down 2 percentage points from the previous year.

Weak Domestic Demand, Stronger Foreign Markets

Domestically, the ethylene industry faces sluggish demand due to a deep contraction in real estate investment, slowing infrastructure growth, and persistently weak retail sales. Despite various stimulus policies, including an initiative to replace old household appliances and cars, the actual impact on ethylene consumption remains limited. Downstream products such as polyethylene continue to experience weak demand.

On the other hand, foreign demand has shown resilience. With inflation easing in Europe and the U.S., and increased demand from Belt and Road Initiative countries, China's petrochemical exports have reached new highs, providing some support for ethylene consumption. In 2024, China’s ethylene equivalent consumption is expected to be 63.55 million tons, a year-on-year increase of 3.1%, but with a growth rate that has slowed by 5 percentage points compared to the previous year.

• Real Estate Slump Continues to Weigh on Consumption of Resins and Ethylene Oxide
  Since 2022, China’s real estate sector has been in decline. In the first half of 2024, real estate investment shrank by 10%, new housing starts dropped by over 20%, and housing prices in major cities continued to fall. These trends have negatively impacted ethylene oxide demand, particularly for polycarboxylate superplasticizers used in concrete. Similarly, demand for polyvinyl chloride (PVC) products such as pipes and profiles has weakened, dragging down ethylene consumption. Although recent policies have aimed to support the housing market, challenges such as low consumer confidence and falling home prices persist, continuing to dampen ethylene demand.

• Recovery in the Textile Sector Eases Ethylene Glycol Losses
  China’s ethylene glycol (EG) production capacity has surged in recent years, rising from 10.5 million tons per year in 2019 to nearly 30 million tons by the end of 2023. However, demand from the polyester industry has not kept pace, leading to severe oversupply and deep losses, with ethylene-based EG production losing up to 1,500 yuan per ton. In 2024, as new capacity additions slow and supply-side pressures ease, demand from the polyester sector has improved, driven by new PET bottle-grade polyester projects and recovering global textile orders. As a result, the oversupply situation has slightly improved.

• Household Appliance and Export Demand Boosts Styrene Consumption
  China’s first wave of home appliances purchased under the 2008 “Appliance to the Countryside” policy has exceeded their expected lifespan, leading to a growing replacement market. In March 2024, the government introduced a large-scale initiative encouraging consumers to replace old household goods, which significantly boosted demand for home appliances. Additionally, since the second half of 2023, overseas demand for Chinese home appliances has rebounded, driving exports to record levels. This has benefited styrene-based products such as polystyrene (PS), acrylonitrile-butadiene-styrene (ABS), and expandable polystyrene (EPS), providing some support to ethylene consumption.

Persistent Losses for Conventional Ethylene Routes, but Ethane Cracking Shows Cost Advantages

Despite limited new capacity, sluggish demand has led to continued losses for most ethylene production routes in 2024—except for ethane cracking.

• Naphtha cracking: High oil prices in the first half of the year pushed up costs, although the situation improved slightly as oil prices fell later in the year. Nonetheless, full-year losses for naphtha crackers widened, with polyethylene (LLDPE) and polypropylene (PP) losing around 600 yuan per ton.

• Coal-to-olefins (CTO): Falling coal prices in western China helped reduce losses, making this route slightly more viable.

• Methanol-to-olefins (MTO): Rising methanol prices drove MTO units back into loss-making territory.

• Ethane cracking: Ample ethane supply in North America led to falling feedstock costs, making ethane crackers significantly more competitive than naphtha-based production.

2025: A New Wave of Ethylene Capacity Expansion

Rapid Capacity Growth Intensifies Supply-Demand Imbalance

In 2025, China will add nearly 10 million tons per year of new ethylene capacity, bringing total capacity to approximately 62 million tons per year. Including capacity from plants starting at the end of 2024 (such as Tianjin Nangang and Baofeng), supply pressure will be at an all-time high. It is estimated that digesting this new capacity will take 3-5 years, leading to further declines in operating rates, which are expected to fall to around 83%. Ethylene production in 2025 is projected to increase by 11.9% year-on-year to 53.3 million tons.

Traditional Demand Struggles, Emerging Applications Offer Hope

In 2025, government policies will continue to support economic recovery, gradually improving demand for ethylene-derived products.

• Packaging will remain the largest driver of ethylene demand, but growth is expected to slow. The transition to paper-based packaging and weaker consumer spending will limit polyethylene demand.

• Real estate investments may stabilize, but high housing inventories will still weigh on ethylene consumption in construction-related materials such as PVC and ethylene oxide.

• Exports will remain critical, but geopolitical risks and trade frictions could impact petrochemical product shipments. Companies will increasingly target new markets in Central Asia, the Middle East, Southeast Asia, and Africa as U.S. trade barriers tighten.

Challenges for Household Appliance and Automotive Demand

The impact of China’s 2024 appliance and automotive replacement policies will likely weaken in 2025. Without additional stimulus measures, sustaining high sales volumes could be difficult. Additionally, in October 2024, the European Union imposed anti-subsidy tariffs of 17.0% to 35.3% on Chinese electric vehicles, creating further headwinds for car exports. As a result, ethylene demand from the appliance and auto sectors may weaken.

Exports Face Uncertainties, but Growth Opportunities Exist

While global manufacturing is recovering, geopolitical tensions remain a risk. The U.S. market may pose greater challenges, pushing Chinese exports toward emerging economies.

Emerging Ethylene-Based Products Gain Momentum

One of the most promising new applications for ethylene is polyolefin elastomer (POE), which is widely used in solar photovoltaic (PV) films and automotive materials.

• In 2023, China consumed 780,000 tons of POE, almost entirely reliant on imports.

• Domestic production is now ramping up, with major projects such as Wanhua Chemical’s 200,000 tons per year POE plant already operational.

• By 2025, new POE plants from Yangzi Petrochemical (50,000 tons per year), Liaoning Dingjide (200,000 tons per year), and Shengjing New Materials (300,000 tons per year) will come online, bringing total domestic POE capacity to around 900,000 tons per year, with demand projected to reach 950,000 tons.

• With continued expansion, POE could become an important new growth driver in the ethylene industry.