The petrochemical industry has decided to reduce the production capacity of the naphtha cracking center (NCC) by 18 to 25% annually, and plans to prepare a business restructuring plan by the end of the year. Meanwhile, the Chinese government is set to announce restructuring measures for the petrochemical and refining industries as early as this month, drawing the industry's attention.
China holds the world's largest ethylene production capacity from NCC, and the Korean petrochemical industry is struggling due to oversupply originating from China.
According to the petrochemical industry and major foreign media on the 2nd, the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT), among five central government agencies, recently ordered local governments to report information on aging petrochemical facilities. Local governments in China reported to the central government on production facilities that have been in operation for over 20 years, including key indicators such as safety, pollutant emissions, and energy efficiency.
Bloomberg quoted a source familiar with the situation in China, noting that "there is a high possibility that measures to reduce oversupply in the petrochemical and refining sectors will emerge by the end of September," and added that "specific plans are awaiting final approval from the Ministry of Industry and Information Technology (MIIT)." It continued, stating, "New approvals for ethylene production facilities that are currently oversupplied may be restricted starting in 2026."
This is in line with the Chinese government's policy to phase out aging petrochemical facilities. The Chinese government had previously set a policy to close petrochemical facilities and storage tanks that have been in operation for over 30 years by the end of 2029, but this time the criteria have been lowered to facilities older than 20 years. Facilities older than 20 years represent 40% of the total. Full renovation of these facilities could reduce ethylene production by 13% and propylene production by 15%.
However, since the Chinese government has already concluded approvals for newly installed petrochemical facilities until 2028, it remains uncertain whether the phasing out of aging facilities will lead to a reduction in ethylene production. An executive from a petrochemical company under Sinopec, a Chinese energy company, had predicted at a meeting held in Jiangsu Province on the 14th of last month that "China's ethylene production capacity will increase by 40 million tons (t) from 2025 to 2028."
According to market research firm NBC, China's ethylene production capacity is expected to be 34.9 million tons in 2024. Even if China embarks on the phasing out of petrochemical facilities, if new chemical facilities offset this, ethylene production could actually increase.
A petrochemical industry official remarked, "Following Europe, China has also begun to address the oversupply in the petrochemical sector," adding, "We are monitoring whether the petrochemical market will improve depending on the scale of restructuring in China."
Another official stated, "Even if China reduces aging petrochemical facilities, significant changes such as the end of the Russia-Ukraine war are necessary for the demand for petrochemical products to increase and for the market to improve."