China's polyethylene supply increases, and demand-side recovery is expected to accelerate.

In terms of production, polyethylene products can be classified into high-density polyethylene (HDPE), low-density polyethylene (LDPE), and linear low-density polyethylene (LLDPE) based on differences in polymerization methods, molecular weight, and chain structure.

HDPE products exhibit high mechanical strength, good processability, and excellent permeability resistance, making them widely used in production and daily life. LDPE products also have a broad range of applications, primarily in plastic products and molded goods. Compared to LDPE, LLDPE offers superior environmental stress cracking resistance, electrical insulation, heat resistance, impact strength, and puncture resistance.

Ethylene serves as the raw material for polyethylene production, with 45% of ethylene consumption dedicated to manufacturing polyethylene products. The production routes for polyethylene are mainly divided into traditional and emerging methods. Traditional routes primarily involve producing ethylene through steam cracking and catalytic cracking technologies, which is then used to manufacture polyethylene. Emerging routes mainly include light hydrocarbon cracking and acetylene hydrogenation to ethylene technologies for ethylene production, which are subsequently used to produce polyethylene.

II. Supply: Global polyethylene (PE) capacity continues to expand, with concentrated commissioning of domestic plants in China and increasing domestic supply.

Global polyethylene capacity is in an expansion phase, with growth concentrated primarily in Asia. Examining the global polyethylene capacity cycle, absolute capacity has increased year by year, while the growth rate has marginally declined. It is expected that a moderate capacity growth rate will be maintained in the future. By 2022, the capacity growth rate had reached 3%, bringing global capacity to 145 million tons. From the perspective of capacity growth data, 2016–2018 marked a peak period for capacity expansion, followed by a new high in growth rates from 2020 to 2022, indicating that the industry is currently in a new capacity cycle. In 2023, global polyethylene capacity increased by 5.03 million tons, and in 2024, it grew by 5.41 million tons. Most of the new plants were commissioned in the fourth quarter, with the actual capacity growth rate around 3.6%, showing a gradual slowdown in expansion.

The three largest polyethylene production regions globally are Northeast Asia, accounting for 29% of total capacity, followed by North America at 22%, and the Middle East at 18%. As the main driver in Northeast Asia, China contributes over a quarter of the global polyolefin capacity.

In China, polyethylene capacity has maintained rapid expansion in recent years. Since 2020, the domestic polyethylene industry has entered a period of concentrated capacity expansion in large refining and chemical integration projects. Between 2020 and 2022, the annual polyethylene capacity growth rate exceeded 15%, marking a new phase of diversified development driven by oil-based, coal-based, and light hydrocarbon-based production routes. Since 2022, persistently high crude oil prices and elevated costs, coupled with high supply, have led to an overall weak market trend for polyethylene. Corporate profits have been squeezed, placing significant pressure on oil-based producers and raising the risk of淘汰 for outdated capacity.

Since then, the pace of new polyethylene plant commissioning in China has slowed. As of now, 2.6 million tons of new capacity have been added this year, bringing domestic polyethylene capacity to 32.41 million tons. In 2024, capacity is projected to increase by 7.78 million tons, a growth rate of 24%, which would raise total domestic capacity to an estimated 40.19 million tons. However, concentrated commissioning may lead to excessive market supply pressure, and some projects may still face delays. The actual capacity additions in 2024 are likely to fall short of original plans but are still expected to exceed the 2023 level, indicating an accelerated pace of capacity realization.

III. Demand: Demand-side recovery is expected to accelerate, with ultra-high molecular weight polyethylene driving industrial demand.

The growth rate of polyethylene demand has slowed but is expected to accelerate its recovery in the future. Over the past decade, China's polyethylene demand grew rapidly. However, in 2021, the apparent consumption of polyethylene was 37.3648 million tons, a year-on-year decrease of 2.4%, indicating a significant slowdown in growth. The main reasons for this are: First, the COVID-19 pandemic in 2020 led to a sharp increase in demand for packaging of anti-epidemic supplies, driving a significant rise in overall polyethylene demand. With the rollout and administration of COVID-19 vaccines, the demand for anti-epidemic packaging declined in 2021. Second, influenced by the goals of "carbon neutrality" and "carbon peak," as well as the dual-control policy on energy consumption, some downstream polyethylene enterprises faced production restrictions and output reductions, which to some extent hampered the growth of polyethylene demand. Third, the single-use plastics restriction policy in 2021 also affected the packaging industry, particularly the demand for HDPE. Additionally, the 12.6% year-on-year growth in China's polyethylene demand in 2020 somewhat constrained the growth potential for 2021. The combination of these factors led to a notable slowdown in polyethylene demand growth in 2021. However, there were still bright spots in polyethylene demand. The rapid development of online shopping and food delivery significantly boosted the demand for e-commerce packaging and takeaway containers, leading to a gradual recovery in demand starting in 2022.

The year 2023 was a phase of macroeconomic pressure and weakness, as reflected in the data: National real estate development investment in 2023 was 11.0913 trillion yuan, a decrease of 9.6% from the previous year. Residential investment accounted for 8.382 trillion yuan, down 9.3%. China's cumulative export value in 2023 decreased by 4.6% year-on-year. The monthly year-on-year increase in China's CPI in 2023 was below the annual target of around 3%, while the PPI remained in negative territory throughout the year. All economic indicators pointed to a weak recovery, with both domestic and external demand declining. Against the backdrop of the Central Politburo meeting on December 8 emphasizing "promoting progress while ensuring stability, and establishing the new before abolishing the old," the domestic economy in 2024 is expected to maintain a tone of "prioritizing stability." Market forecasts suggest a GDP growth target of around 5% for 2024. If the U.S. economy achieves a soft landing in the second half of next year, initiating an interest rate cut cycle and fostering a synchronized recovery between China and the U.S., the demand side is expected to accelerate its recovery process. Polyethylene demand is likely to grow in tandem with this macroeconomic recovery.

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