Ethylene Capacity Approaches 90 Mt: China's Petrochemical Market Poised for Post-2030 Rebalancing

In recent years, China's petrochemical industry has remained entrenched in a prolonged downturn amid sustained capacity expansion and persistently high crude oil prices. By 2025, the sector is set to reach another historic peak in capacity deployment, while downstream consumption is projected to underperform expectations amid heightened uncertainty. Against this backdrop, enterprises are actively adjusting feedstock structures and supply layouts, diversifying export destinations, and establishing new trade channels, while seeking to leverage policy dividends from national market-stabilisation measures to navigate a challenging operating environment.

The accelerated pace of capacity deployment has disrupted the traditional five- to seven-year investment cycle. At the same time, structural factors — including the fading demographic dividend, slowing investment and export growth, and the advancement of the circular economy — are constraining demand growth. During the 15th Five-Year Plan (2026–2030) period, the industry is expected to face mounting difficulty in identifying a consumption fulcrum capable of rebalancing supply and demand. As a result, the supply-demand mismatch may take longer to resolve, with the sector entering an extended period of stagnation characterised by an 'L-shaped' recovery trajectory, reflected across eight key structural trends.

1. Capacity Expansion Enters an 'Upgrade-Driven Elimination' Phase

During the 14th Five-Year Plan period, China's ethylene capacity expanded by more than 29 million tonnes per annum, while paraxylene (PX) capacity increased by approximately 16 million tonnes per annum. By 2025, ethylene capacity reached 64 million tonnes per annum, and PX capacity rose to 42.38 million tonnes per annum. Looking ahead to the 15th Five-Year Plan period, planned additions of ethylene and PX capacity are estimated at 25 million tonnes per year and 9.5 million tonnes per year, respectively.

As self-sufficiency rates continue to rise, supply-demand imbalances for certain products remain pronounced, with profitability in some segments lingering at low levels. In response, the phased retirement of outdated facilities alongside the construction of larger-scale, more competitive units has become a core strategy for enterprises with sizeable legacy capacity.

Incomplete statistics indicate that during the 14th Five-Year Plan period, approximately 1 million tonnes per annum of ethylene capacity was decommissioned, while existing producers commissioned 2.4 million tonnes per annum of new capacity. During the 15th Five-Year Plan period, a further 3.5 million tonnes per annum of ethylene capacity is scheduled for closure, alongside 5.4 million tonnes per annum of new capacity from incumbent enterprises. Through this process of 'upgrade-based elimination,' the average scale of China's ethylene plants is expected to rise from 800,000 tonnes per annum to 1 million tonnes per annum by the end of the period, while average PX plant scale will increase from 1.1 million tonnes per annum to 1.25 million tonnes per annum, significantly enhancing industry competitiveness.

2. Industry Transformation Accelerates via 'Oil-to-Chemicals' and Non-Integrated Models

With refined oil products approaching peak demand, China's refining sector is accelerating its transition toward petrochemical production. Despite subdued profitability in recent years, the underlying drivers of this shift remain intact over the medium to long term. During the 15th Five-Year Plan period, the chemical light oil yield of China's refining industry is projected to rise from the current 17%–18% to 23%–24%. Expanded deployment of catalytic cracking and hydrocracking units will increase chemical feedstock output, while also boosting by-product chemicals such as C3, C4 and aromatics, raising refinery chemical product yields from around 15% to 19%.

Advanced processes — including heavy oil catalytic cracking and direct crude-to-chemicals conversion — are further enhancing crude utilisation efficiency and accelerating the sector's pivot toward chemicals.

To mitigate the impact of peaking refined oil demand on petrochemical investments, an increasing number of private enterprises are adopting non-integrated development models, most notably propane dehydrogenation (PDH). Between 2020 and 2024, China added nearly 20 million tonnes per annum of PDH capacity, accounting for more than half of new propylene capacity additions. More than 10 million tonnes per annum of additional PDH capacity is expected to come online before 2030.

Ethane cracking has also advanced rapidly. By 2024, ethane-based routes accounted for approximately 8% of China's ethylene production. During the 15th Five-Year Plan period, over 6 million tonnes per annum of ethane cracking capacity is set to commence, with numerous additional projects under planning.

Overall, novel oil-conversion and non-integrated projects are replacing traditional refining–petrochemical integration as the primary drivers of capacity growth. By 2030, non-integrated olefin capacity is projected to exceed 25% of total capacity, intensifying supply pressure along the propylene chain and reshaping the competitive landscape.

3. Green Transformation Becomes an Inevitable Imperative

Low-carbon development and green transformation have become unavoidable trends for the petrochemical industry. Coal chemical projects, characterised by high carbon intensity and mismatched carbon–hydrogen ratios, generate substantial emissions during production. Consequently, deep integration with renewable energy sources such as wind and solar power is emerging as a primary pathway for capacity upgrading and decarbonisation during the 15th Five-Year Plan period.

In theory, full substitution with green hydrogen — without altering existing process flows — could significantly reduce coal consumption and cut production-related carbon emissions by more than 50%. Newly planned coal-to-olefin projects by Ningxia Baofeng, China Coal Group and Sinopec have already achieved effective coupling between green hydrogen and coal chemical processes. However, given constraints related to renewable energy scale, costs and hydrogen supply stability, implementation during the 15th Five-Year Plan period is expected to remain concentrated at the ten-thousand-tonne scale.

At the same time, the relatively low cost of capturing high-concentration CO₂ from coal chemical plants, combined with large-scale CCUS applications such as enhanced oil recovery and methanol hydrogenation, is expected to further support capacity transformation.

4. Consumption Growth Increasingly Relies on New Cycles and New Channels

During the 15th Five-Year Plan period, China's population is set to enter a phase of decline while societal ageing accelerates. With urbanisation nearing 70%, growth driven by urban expansion is expected to slow markedly, constraining traditional consumption growth. External trade uncertainties and the development of the circular economy will further weigh on conventional petrochemical demand.

Under these conditions, consumption fundamentals will increasingly depend on rising national income levels, recovery in the property sector, and the expansion of emerging industries, signalling the onset of a new economic cycle.

China's annual per capita disposable income currently stands at RMB 41,314. With long-term economic growth projected at 4%–5%, there remains significant room for income growth, supporting China's progression toward high-income country status. In the property sector, supportive policies introduced since late 2024 have led to modest recovery signals in some regions. Most international institutions expect the sector to bottom out between 2025 and 2026, followed by a gradual and differentiated recovery.

Emerging industries — including wind and solar energy, power batteries and electric vehicles — have already achieved scale, driving related petrochemical demand. Future breakthroughs in robotics, the low-altitude economy, 6G, hydrogen energy and nuclear power are expected to unlock new trillion-yuan markets and expand consumption scenarios.

New trade corridors are also playing an increasingly important role. In 2024, China's exports to Belt and Road partner countries grew by 9.6% year-on-year, surpassing overall export growth of 7.1%. Trade with these partners accounted for 50.3% of China's total imports and exports for the first time. Further momentum is expected from the China–ASEAN Free Trade Area 3.0 and expanding trade ties with Latin America and Africa.

5. Toward a New Market Equilibrium After 2030

Driven by emerging consumption, new industries and expanding exports, China's ethylene-equivalent consumption is projected to grow at an annual rate of at least 4%. Since 2020, ethylene capacity has expanded by more than 5 million tonnes per annum annually, with project launches accelerating as the 'dual carbon' targets approach. By 2030, China's ethylene capacity is expected to approach 90 million tonnes per annum, with more than 90% of bulk petrochemical products facing structural oversupply.

Disruption of the traditional investment cycle has limited the industry's ability to absorb new capacity in the short term, resulting in prolonged low profitability. As the carbon peak timeline nears, investment enthusiasm is also waning. Between 2030 and 2035, planned project scale is expected to decline sharply, with only three to four projects anticipated and annual ethylene capacity additions averaging around 600,000 tonnes, allowing earlier excess capacity to be absorbed.

PX capacity additions are also set to decelerate. Following regulatory tightening, annual new PX capacity during the 15th Five-Year Plan period is projected to fall to 300,000–400,000 tonnes, down from approximately 5 million tonnes per annum previously.

Together, investment cycles, policy constraints and supply-demand dynamics are expected to steer China's petrochemical industry into a new equilibrium phase after 2030, marked by slower capacity growth, accelerated retirement of outdated assets and gradual market rebalancing.

6. Diminishing Room for Feedstock Structure Adjustment

In response to market weakness, enterprises have prioritised low-cost feedstock strategies. Since China's first ethane cracker began operations in 2019, ethane cracking capacity has reached 4.3 million tonnes per annum and is projected to rise to 9.35 million tonnes per annum by around 2030. Producers such as Satellite Petrochemical have become key market players, while PetroChina is set to become the country's largest ethane-based ethylene producer.

Ethane cracking costs are estimated to be approximately RMB 1,000 per tonne lower than naphtha cracking. However, sustained expansion of US ethane exports and slowing growth in Permian Basin gas production are expected to push US Gulf ethane prices to around USD 210 per tonne by 2027 — 45% higher than in 2023 — and potentially USD 250 per tonne thereafter. Delivered prices to China could reach USD 580 per tonne, narrowing the price gap with Northeast Asian naphtha to USD 60 per tonne. Additional costs related to shipping, terminals, storage and logistics further erode the cost advantage.

Meanwhile, low-cost oil-to-chemical conversion routes remain limited, naphtha costs in integrated projects remain high, LPG substitution faces price pressures from PDH expansion, and alternative technologies continue to face yield and efficiency constraints. Overall, the industry's scope for further feedstock cost optimisation is narrowing.

7. New Materials Face Emerging Oversupply Risks

As traditional demand sectors mature or decline, strategic emerging industries and future industries are becoming the primary growth engines for petrochemical consumption, particularly for high-value chemical new materials. Current demand for chemical new materials stands at approximately 44 million tonnes per annum, with self-sufficiency below 70%. By 2030, demand is projected to reach around 69 million tonnes per annum, with a compound annual growth rate of 7% and self-sufficiency rising to 76%.

Since 2021, foreign-invested capacity additions have exceeded 7 million tonnes per annum, concentrated in high-performance resins. Domestic private enterprises have also strengthened their competitiveness. However, high returns have attracted widespread investment, resulting in oversupply risks across several high-end products. Planned capacity during the 15th Five-Year Plan period includes over 3.4 million tonnes per annum of EVA, more than 4.5 million tonnes per annum of POE, around 6 million tonnes per annum of metallocene polyethylene, and 7 million tonnes per annum of nylon 66.

Differentiated bulk products face pressure from both low-cost commodity competition and rising demand for customised downstream solutions, placing higher requirements on operational management and sustained R&D investment.

8. Plastic Circular Economy Enters a New Phase

The promotion of a circular economy has become an industry-wide consensus. While physical recycling dominates China's plastic recovery system, accounting for 99%, collection efficiency remains low and sorting challenges persist. China currently recycles over 20 million tonnes of waste plastics annually, with recycling, landfill and incineration each accounting for roughly 30%.

As global plastic regulations tighten and negotiations under the Global Plastics Treaty continue, producers may face increasing compliance costs. Chemical recycling, though still at an early stage, offers a complementary pathway. Pyrolysis is currently the most mature technology, with industrial applications already in place. By 2030, China's annual plastic recycling volume is projected to reach 26 million tonnes, with chemical recycling expected to reach one million tonnes, marking a new phase in the development of the plastic circular economy.