China’s C2 and C3 capacity in 2025 forecast to be 121% and 179% more than local demand

By John Richardson

ONE OF THE arguments still doing the rounds out there is that this year will mark the turning point as global petrochemicals operating rates, margins and spreads recover.

Perhaps on a regional basis, yes, if we move to a more fragmented global trading world. A big threat or opportunity in 2025, depending on your position, is China facing a substantially higher number of trade disputes, as I highlighted in a 19 December 2024 post.

The US is the obvious focus of attention because of the re-election of President Trump. But since the Evergrande Moment, China has poured a lot more investment into export-focused manufacturing capacity to try and compensate for the end of its real-estate bubble, as this 1 January Wall Street Journal article underlines. This is exerting more pressure on competitors in many countries.

What has happened downstream is mirrored upstream, as I discussed in my 2 December 2024 post. China is forecast to greatly increase its global market shares in low, medium and higher- value polymers.

A 121% estimated jump in China’s ethylene capacity exceeding local demand

Consider the first of today’s charts. In a world where China continues to largely maintain or even grow its direct and indirect petrochemicals and polymers exports (in the latter case, exports that either package finished goods or are used to make the components of finished goods), the pressure on global petrochemicals profitability can surely only increase.

I will consider what this could mean for the key ethylene and propylene derivatives in later posts. Looking just at these upstream numbers, what the ICIS data is telling us is quite astonishing:

• In 2024 over 2023, China’s ethylene capacity exceeding local demand is estimated to have fallen by 1.6m tonnes. But in 2025 compared with 2024, it is forecast to increase by 6.3m tonnes to an all-time high of 11.5m tonnes. This would represent a year-on-year increase of 121%. Actual capacity is due to increase by 9m tonnes in 2025 over 2024, the biggest annual increase on record.
• Propylene oversupply is far worse reflecting the several routes to make propylene other than just the steam cracker – the only major route to produce ethylene. In 2024 over 2023, propylene capacity exceeding demand was at 2.7m tonnes. This year compared with 2024 oversupply is expected to reach 7.4m tonnes. Capacity exceeding demand is forecast to total 20.3m tonnes in 2025, 179% higher than in 2024. Annual capacity is due to increase by 9.6m tonnes in 2025 or 2024, which would again by the biggest annual increase on record.

Not all these crackers, refinery-based propylene plants and PDH-based propylene facilities may come onstream on schedule, of course. Capacity is also different from production.

But there is surely enough extra steel already in the ground to potentially make global olefins and derivatives markets worse.  Note that China’s capacity exceeding demand is also forecast to increase in 2025 in some of the other monomer building blocks.

Here is a reminder of the reasons for my choice of years in the above chart and the two charts that are about to follow.

In 1992, Deng Xiaoping’s Southern Tour kicked off the economic liberalisation that turbo-charged Chinese economic growth. Growth was given a further boost by China’s admission to the World Trade Organisation in late 2021 that removed the tariffs and quotas that had restricted Chinese exports of finished goods to the West.

Next came the giant 2009 economic stimulus package that led to the real-estate bubble, and, ultimately, the Evergrande Moment in late 2021. China’s subsequent economic downturn has been compounded by its demographic crisis.

China forecast to overtake the US in excess ethylene

The following chart shows China’s ethylene capacities exceeding local demand as percentages of total global ethylene capacities exceeding demand. China is compared with the world’s three big ethylene derivatives export regions – the US, the Middle East and Northeast Asia ex-China comprising Japan, South Korea and Taiwan.

This year’s forecast changes are again astonishing. In 2024, the US was in first place with capacity 21% more than local demand; China was in fourth place behind the US, the Middle East and Northeast Asia ex-China at 13%.

This year, though, ICIS expects China’s capacity exceeding demand as a percentage of the global total to jump to first place – 31%. The US is forecast to edge lower to 20%, falling to third place behind Northeast Asia ex-China.

It is well understood that US ethylene and derivatives capacity was and will continue to be built for export markets because of the shale gas feedstock advantages and a mature local market. Either by accident (lower-than-expected domestic demand) or by design, and without the same feedstock advantages, China appears to be following the direction of the US.

Now let us look at China’s propylene capacities versus local demand as percentages of the global totals. This is versus the only other big export region by this measure which is Northeast Asia ex-China.

China has been in pole position since 2023. China’s share of global excess capacity is forecast to reach 31% this year, up from 24% in 2024.

As Northeast Asia ex-China loses the market share game, its share of capacity exceeding demand is expected to slip to 15% in 2025 from 17% in 2024. The region’s propylene derivatives exports are largely driven by South Korea.

Increased trade measures may just shuffle the pack

“After President Donald J. Trump slapped tariffs on Chinese bicycles in 2018, Arnold Kamler, then the chief executive of the bike maker Kent International, saw a curious trend play out in the bicycle industry,” wrote the New York Times in this 31 December 2024 article.

Chinese bicycle factories moved their final manufacturing and assembly operations out of China, setting up new facilities in Taiwan, Vietnam, Malaysia, Cambodia and India, the newspaper added.

Using parts mostly made in China, the new plants made bicycles that they could be directly exported to the US, thereby sidestepping the 25% tariff levied on direct US imports from China, said the NYT.

It seems to be the same in many low, medium and high-value manufacturing chains. Because such a large proportion of components are made in China, any increase in trade measures may just shuffle the pack: More Chines final assembly plants moving offshore to avoid tougher trade measures by the US etc.

Excess Chinese ethylene and propylene molecules might follow this route as additional final assembly plants move offshore, until maybe at some point the world substantially reduces its dependence on Chinese manufacturing. But such a reduction cannot of course happen in 2025.

You might think that the other “get out of jail for free” card will be a rebound in Chinese domestic demand. But as the 1 January WSJ article warns, the impact of the end of the real-estate bubble and the demographic crisis means that any stimulus-driven recovery in the local economy is likely to be modest.

“China’s property meltdown has since 2021 destroyed around $18 trillion of Chinese household wealth, according to an estimate by Barclays, eclipsing the losses suffered by Americans in the financial crash of 2008-09,” wrote the WSJ.

China’s population was forecast by Bloomberg Intelligence to shrink by 51 million — more than the size of California — over the next decade, said the Bloomberg wire service in November last year.

So, here is another prediction for 2025: Global petrochemicals operating rates, spreads and margins will decline versus last year because for the scale of China’s capacity additions and the country’s continued ability to export its excess molecules, either directly or indirectly.  

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