China’s petrochemical sector anticipates significant growth in a key segment, projected to expand by nearly 50% by 2028.
This expansion is set to occur despite intensified competition within the wider refining industry, which is negatively impacting profit margins, according to a Reuters report.
Li Suoshan, an executive at a chemical logistics company owned by Sinopec, announced on Thursday at a conference in China’s Jiangsu province that the capacity for ethylene—a crucial component in plastics—is projected to increase by 40 million metric tons between 2025 and 2028, reaching a total capacity of 100 million tons.
Demand growth likely to slow down
Demand growth for traditional petrochemicals is projected to decelerate over the next five years. This slowdown is expected to result in weak margins in 2025, with a further reduction in profits anticipated.
As China’s refining sector grapples with overcapacity and a weakening economy, many refiners are shifting their focus towards petrochemical products.
This move is driven by dwindling fuel demand, a direct consequence of the accelerating adoption of electric vehicles.
However, this surge in petrochemical production, while a strategic pivot for refiners, is paradoxically leading to a significant drop in petrochemical prices.
The increased supply, intended to offset losses from traditional fuel sales, is creating an oversupply in the petrochemical market, thus eroding profit margins in this new segment.
Fu Xiangsheng, vice chairman of the China Petroleum and Chemical Industry Federation, reported at the conference that refining and petrochemical losses rose by 8.3% in the first half compared to the previous year.
He also noted that both sectors are experiencing “involution,” a term widely used in China to describe intense competition that eradicates profits.
China’s campaign
China is intensifying its campaign against what it labels “disorderly low-price competition,” a policy initiative aimed at curbing excessive price reductions and unsustainable growth in various industrial sectors.
This heightened rhetoric underscores Beijing’s growing concern over potential market distortions and the long-term health of its domestic industries, particularly in areas susceptible to overcapacity.
A prime example of this policy in action is the polysilicon sector, a foundational component in the manufacturing of solar panels.
The industry has already taken proactive steps by proposing and beginning to implement plans to significantly cut production capacity.
This move is a direct response to the government’s push for more disciplined market behavior and is intended to mitigate the negative impacts of oversupply, such as plummeting prices and diminished profitability for manufacturers.
The goal is to foster a more stable and sustainable market environment for polysilicon producers, ensuring the industry’s continued growth and competitiveness on a global scale while avoiding ruinous price wars.
However, determining how much capacity to cut, and in what manner, presents a significant challenge in China, given that local governments frequently have vested interests in major projects.
Fu advocates for a nuanced approach to refinery closures, rejecting blanket rules based on size, utilization, or profitability. He suggests that such decisions should be a blend of state policy and market dynamics.
He also anticipates a future rise in petrochemical prices as China addresses “involution,” though he didn’t specify a timeline.
“Petrochemical industry associations are at the stage of conducting surveys and seeking feedback,” Yang Lin, principal petrochemical analyst at Guosen Securities was quoted in the report.
Areas such as refining and ethylene may see some moves.
The post China’s petrochemical sector faces profit squeeze amid expansion appeared first on Invezz