China’s Petrochemicals Surge Raises Global Oversupply Fears

A buildout in new petrochemical capacity in China is fueling fears that the country could tip the global market into oversupply, hurting smaller petrochemical producers.

Bloomberg reported today that China’s polyethylene production could add 18% this year, based on forecasts by a local consultancy. The output growth will significantly exceed expected growth in demand, at 10%, and lead to a 13% decline in polyethylene imports.

China is already the world’s biggest producer of ethylene and polyethylene, after building seven petrochemical complexes over the past ten years. Previously, the United States was the biggest producer of the petrochemical commodities.

China is also the largest consumer of petrochemicals, according to BloombergNEF data, with imports last year hitting 15 million tons. Yet as domestic production capacity grows, the market for other producers is shrinking, and they would need to find alternative buyers, Bloomberg said in its report.

Chinese production capacity for polyethylene is set to increase by another 16% in 2026, an analyst with consultancy JLC said. This will likely aggravate a “structural imbalance” created by surplus production capacity. Meanwhile, some new capacity is being delayed, likely in recognition of the imbalance situation. Germany’s BASF recently built a petrochemicals plant in China, which was supposed to start operations this year but has been delayed.

Petrochemicals have turned into the biggest driver for crude oil demand growth. Over the five years to 2024, growth in demand for petrochemicals accounted for 95% of total oil demand growth. In China, this growth in demand has been especially pronounced, eventually tipping the market into oversupply. The trend was similar to what happened in solar power and electric vehicles in China, with strong government encouragement leading to oversupply and overcapacity, prompting intervention from the authorities to avoid cascading collapses in the respective industries.

By Irina Slav for Oilprice.com

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