China's polyethylene supply increase demand side is expected to speed up the repair process
1、 Polyethylene (PE) is the largest variety of general-purpose polyolefin materials with a wide range of applications
According to the "Deep Research on the Development and Investment Prospects of China's Polyethylene Industry (2024-2031)" released by Guanyan Report Network, polyethylene (PE) is a thermoplastic resin formed by polymerization of ethylene. It has excellent low-temperature resistance, odorless, non-toxic, good chemical stability, and can withstand the erosion of most acids and bases (not oxidizing acids). At normal temperatures, it is insoluble in general solvents and has relatively low water absorption and excellent electrical insulation. This has given it a development history of about 60 years, and currently the global production of polyethylene ranks first among the five major general-purpose resins.
Polyethylene is the largest variety of general-purpose polyolefin materials in terms of production, widely used in agriculture, industry, packaging, and daily industry. It is widely used in China, with thin films accounting for the highest proportion and consuming approximately 58% of polyethylene. In addition, injection molded products, wires and cables, hollow products, etc. all occupy a significant proportion in their consumption structure and play a crucial role in the plastic industry.
In terms of production, polyethylene products can be divided into high-density polyethylene (HDPE), low-density polyethylene (LDPE), and linear low-density polyethylene (LLDPE) products based on different polymerization methods, molecular weight sizes, and chain structures. High density polyethylene products have high mechanical strength, good processing performance, and good penetration resistance, and are widely used in production and daily life; The application range of low-density polyethylene products is also relatively wide, mainly used in plastic products, molded products, etc; Compared with low-density polyethylene products, linear low-density polyethylene has excellent resistance to environmental stress cracking and electrical insulation, as well as higher heat resistance, impact resistance, and puncture resistance.
Ethylene is the raw material for the production of polyethylene, and 45% of the ethylene consumption is used to produce polyethylene products. The production routes of polyethylene are mainly divided into traditional routes and emerging routes; The traditional route mainly produces ethylene through steam cracking and catalytic cracking technology, and then produces polyethylene products. The emerging route mainly produces ethylene through technologies such as light hydrocarbon cracking and acetylene hydrogenation to produce ethylene, and then produces polyethylene products.
2、 Supply: Global polyethylene (PE) production capacity continues to expand, with concentrated production of equipment in China and an increase in domestic supply
Global polyethylene production capacity is in an expansion period, with capacity growth mainly concentrated in Asia. Throughout the global polyethylene production cycle, absolute production capacity has been increasing year by year, while the marginal growth rate is decreasing. It is expected to maintain a moderate production capacity growth rate in the future. As of 2022, the growth rate of production capacity has reached the level of 3%, and the global production capacity has reached the level of 145 million tons. From the data of production capacity growth rate, it can be seen that 2016-2018 was a peak period of production capacity, and then the growth rate reached a new high from 2020 to 2022, indicating that we are currently in a new production capacity cycle. In 2023, the global new polyethylene production capacity was 5.03 million tons, and in 2024, the global new polyethylene production capacity was 5.41 million tons. Most of the facilities were put into operation in the fourth quarter, and the actual production capacity increased by about 3.6%, gradually slowing down.
The three major production capacity regions for polyethylene in the world are Northeast Asia, with a production capacity proportion of 29%, followed by North America, which accounts for 22%, and finally the Middle East, which accounts for 18%. As the main force in Northeast Asia, China contributes over a quarter of the global polyolefin production capacity.
From China's perspective, polyethylene production capacity has maintained rapid expansion in recent years. Since 2020, domestic polyethylene has entered a period of concentrated expansion in large-scale refining. From 2020 to 2022, the annual growth rate of domestic polyethylene production capacity has been above 15%, and polyethylene has entered a new stage of diversified development in oil, coal, and light hydrocarbons. Since 2022, crude oil has been operating at high levels and costs have remained high. However, under high supply, the polyethylene market has shown a weak overall trend, squeezing enterprise profits. Oil production enterprises are facing enormous pressure, and outdated production capacity is facing the risk of elimination. The pace of new polyethylene production in China has slowed down in 2023. As of the previous year, the new production capacity was 2.6 million tons, and the domestic polyethylene production capacity reached 32.41 million tons. It is estimated that the production capacity will increase by 7.78 million tons in 2024, with a growth rate of 24%. The total domestic production capacity is expected to reach 40.19 million tons.
Centralized production may lead to excessive market supply pressure, and some devices may still have delayed production. The actual production in 2024 is likely to be lower than the original plan, but still higher than the level in 2023, and the production capacity will be accelerated.
Statistical table of new polyethylene installations in China in 2024
3、 Demand: The demand side is expected to accelerate the repair process, and ultra-high molecular weight polyethylene drives industrial demand
The growth rate of polyethylene demand has declined, and it is expected to accelerate the repair process in the future. The demand for polyethylene in China grew rapidly in 10 years, but the apparent consumption of polyethylene in 2021 was 3736.48, down 2.4% year on year, and the growth rate dropped significantly. The main reasons are as follows: First, the COVID-19 in 2020 prompted a significant increase in the demand for packaging of epidemic prevention materials, which led to a significant increase in the demand for polyethylene as a whole. With the launch and vaccination of COVID-19 vaccine, the demand for epidemic prevention material packaging will fall back in 2021. Secondly, influenced by the goals of "Carbon Neutrality" and "Carbon Peak" as well as the dual control policy on energy consumption, some downstream enterprises of polyethylene have experienced production restrictions and reductions, which has to some extent dragged down the growth of polyethylene demand. Thirdly, the policy of restricting the use of disposable plastics in 2021 has also affected the demand for the packaging industry, especially HDPE. In addition, the year-on-year growth rate of polyethylene demand in China in 2020 reached 12.6%, which to some extent affected the growth space in 2021. The combination of various factors has led to a significant decline in the growth rate of polyethylene demand in 2021. However, there are still bright spots in the demand for polyethylene. With the further promotion of the rapid development of online shopping and takeout, the demand for online shopping packaging and takeout lunch boxes has significantly increased, and the demand will gradually recover in 2022.
2023 is a stage of weak macroeconomic pressure. According to data, in 2023, the national real estate development investment was 11091.3 billion yuan, a decrease of 9.6% compared to the previous year; Among them, residential investment was 8382 billion yuan, a decrease of 9.3%; In 2023, the cumulative year-on-year decrease in China's export value was 4.6%; The monthly year-on-year increase in China's CPI in 2023 is below the annual expected target of around 3%, while the PPI is in a negative range throughout the year. All economic data points towards weak recovery, and both domestic and foreign demand have declined. Against the backdrop of the Central Politburo meeting on December 8th emphasizing "promoting stability through progress, establishing first and then breaking through", the domestic economy is expected to remain "stability oriented" in 2024, and the market predicts that the GDP growth rate target for 2024 will be around 5%. If the US economy experiences a soft landing in the second half of next year and begins the process of interest rate cuts, the recovery between China and the US will resonate, and the demand side is expected to accelerate the repair process. The demand for polyethylene is expected to grow along with the macro repair process.
Ultra high molecular weight polyethylene is a high-performance engineering plastic with a wide range of downstream applications. Ultra high molecular weight polyethylene is an engineering plastic with a linear structure and excellent comprehensive properties. UHMWPE molecular chains are very long, arranged in the same direction and intertwined with each other. By strengthening the interaction between molecules, longer molecular chains can more effectively transfer loads to the main chain, so UHMWPE has a high specific modulus and strength. UHMWPE ranks first in terms of wear resistance among plastics, and is several times more wear-resistant than carbon steel and brass. Its wear resistance is more than tens of times that of ordinary polyethylene, and its wear resistance will further improve with the increase of molecular weight. The friction coefficient is also smaller than other engineering plastics and can be comparable to polytetrafluoroethylene, making it an ideal lubricating material. Due to its excellent wear resistance and lubrication performance, UHMWPE has been widely used in artificial joints.
At present, fibers are the largest consumer area of ultra-high molecular weight polyethylene. According to data statistics, the total consumption of ultra-high molecular weight polyethylene in China in 2023 was about 432200 tons, a year-on-year increase of 54.36%, mainly from fiber and battery separator products. Ultra high molecular weight polyethylene fiber is the largest downstream application field in 2023, accounting for 35%; Battery separators, plates, and industrial pipes account for 31%, 15%, and 11%, respectively. In the same year, the shipment volume of battery separators in China increased by over 110% year-on-year, and it is expected that energy storage batteries and power batteries will continue to maintain a rapid growth trend in the next five years, further promoting battery separators to become the most important growth area for ultra-high molecular weight polyethylene.
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