China’s petrochemical industry is also beginning to overflow with supply.
We also have direct influence…China’s Oversupply, Petrochemicals After Electric Cars? [China Difference]
[Editor’s note] I look at China, which is different, with an uncomfortable and unfair eye.
Early last year, the term “New 樣” started to become popular in China. In the early 2000s, Koreans thought of cheap socks and stuffed dolls, but now electric cars, batteries, and solar products have emerged as new export items.
However, not long after China’s state-run media, including the People’s Daily, mentioned “Shin-San Yang,” electric vehicles, batteries, and solar power products have become synonymous with oversupply from China around the world. The sea behind it is the sea that we are familiar with.
The U.S. has raised tariffs on Chinese electric vehicles from 25% to 100%, solar cells from 25% to 50%, lithium batteries from 7.5% to 25%, and the European Union has begun imposing additional provisional countervailing duties of up to 37.6% on Chinese electric vehicles.
What can be seen here is that items that increase China’s self-sufficiency or increase exports can act as oversupply for the rest of the country. In fact, in China, the expression “overcapacity” is often used rather than “oversupply.” It is an expression that emphasizes excess production capacity rather than oversupply of products, and it can be said that the focus is on causes rather than results.
It is impossible to think of excessive production in China except for local governments. This is because the governments of 31 provinces, cities, and autonomous districts in China start building factories using cheap land without taking into account the overall overproduction of China in order to create jobs and GDP.
- What’s next for oversupply? Petrochemicals?
In the process of refining crude oil, petrochemical companies obtain naphtha, which is used as a raw material in the chemical industry, along with gasoline and diesel. It decomposes naphtha again to produce basic oils such as ethylene and propylene. Ethylene, in particular, looks like a grain of rice, so it is called the ‘rice of the industry’, and its production capacity is important enough to represent a country’s petrochemical industry competitiveness.
According to a report published by the Export-Import Bank of Korea’s Overseas Economic Research Institute late last year, China’s petrochemical production capacity is increasing rapidly.
China’s ethylene production capacity increased by 24.63 million tons (about 90.8 percent) in just four years from 27.11 million tons in 2019 to 51.74 million tons in 2023. During the same period, the U.S. increased by 9.25 million tons from 36.58 million tons to 45.83 million tons, and Korea only increased by 2.78 million tons from 10.2 million tons to 12.8 million tons. China, the largest export market for Korean petrochemical companies, has expanded its production capacity to become the world’s No. 1 in 2022 due to policies to increase self-sufficiency, heralding intensifying competition in supply.
The oversupply from China is already on the horizon. On the 2nd, Bloomberg News published an article titled “China’s Plastic Boom Is Set to Create Another Trade Headache” (China’s Plastic Boom Is Set to Create Trade Headache). Although China’s production capacity of petrochemical products has soared, petrochemical companies will eventually pour out cheap products overseas as sales in China decrease due to sluggish domestic demand.
According to the Chinese Federation of Petrochemical Industries, China’s production capacity of polypropylene (PP) will increase to 60 million tons by the end of 2025, when the “14th Five-Year Plan” ends, but demand in China is only 41.6 million tons, which is expected to generate 18.4 million tons of excess production. In addition to polyethylene (PE), polypropylene, a representative plastic material, has high heat resistance and excellent chemical resistance, so it is used as an airtight container for home appliances, interior and exterior materials of automobiles, and food.
Polyethylene production capacity is 48.9 million tons and demand in China is 45.3 million tons, which is expected to overproduction of about 3.6 million tons.
In addition, ethylene vinyl acetate, methanol, and glycol are also feared to produce 800,000 tons, 2.4 million tons, and 9.4 million tons, respectively.
- ‘Made in China 2025’ announced in 2015, the proportion of exports to China since then 45.2% → 36.3%
The Chinese government’s large-scale expansion of petrochemical facilities is expected to prolong the oversupply because it is being pursued in accordance with the “Chinese Manufacturing 2025” and “Self-sufficiency Enhancement” strategies to produce its own raw materials and intermediate goods instead of importing them by promoting the qualitative growth of the manufacturing industry.
In fact, China’s petrochemical production capacity has soared in the past 10 years since the announcement of the “Made in China 2025” in 2015 through the “13th Five-Year Plan” (2016-2020) and the “14th Five-Year Plan” (2021-2025). Considering the ever-worsening geopolitical risks caused by the U.S.-China relationship and the Russo-Woo war, China’s policy to increase self-sufficiency in order to secure stable petrochemical products, a key infrastructure industry, is expected to strengthen.
The Export-Import Bank of Korea’s Overseas Economic Research Institute predicted that China has already reached 100% self-sufficiency rate of major basic oils such as ethylene and propylene and polyvinyl chloride (PVC) in 2020, and that the self-sufficiency rate of paraxylene (PX), an intermediate raw material, will reach 100% by 2025.
Due to China’s rising self-sufficiency rate, Korea, which has increased its trade surplus through exports to China, is also being hit directly. This is because China has imported large-scale petrochemical products such as ethylene from Korea, which is geographically close to it.
According to the Korea International Trade Association, exports of petrochemical products fell 15.9% year-on-year to $45.6 billion last year. The sluggish exports were largely attributable to China, with exports to China falling 17.7% year-on-year to $17 billion. As previously seen, China’s annual ethylene production capacity last year more than doubled in five years to 51.74 million tons.
The share of exports to China plunged 11.5 percentage points over the past 13 years from 47.8 percent in 2010 to 36.3 percent in 2023. In contrast, the share of exports to the U.S. rose 5.4 percentage points from 3.9 percent to 9.3 percent, and the share of exports to Europe rose 11.3 percentage points from 6.6 percent to 17.9 percent during the same period. Even when calculating from 2015 when “Made in China 2025” was announced, the public