IEEFA Study: Global Petrochemical Overcapacity Continues to Depress Prices

en.Wedoany.com Reported - On October 29, the Institute for Energy Economics and Financial Analysis (IEEFA) released a global petrochemical industry supply and demand study, noting that capacity expansion in ethylene, propylene and their downstream polymers continues to outpace demand growth, further prolonging the industry downturn cycle. Research data shows that ethylene and propylene prices have fallen 25% to 50% from their highs in the 2010s, and global basic chemicals plant utilization rates have dropped from previous highs above 90% to the mid-to-high 80% range.

Capacity expansion is mainly concentrated in China, the United States and the Asia-Pacific region. U.S. shale gas development has increased low-cost ethane supply, driving construction of ethylene cracking units in the Ohio River Valley and along the Gulf Coast. China and other Asia-Pacific countries have simultaneously increased petrochemical production facilities, while the Middle East has leveraged lower-cost hydrocarbon feedstocks to build ethylene, propylene and downstream polymer production units.

China's petrochemical trade landscape has also changed. The report notes that China shifted from a net importer to a net exporter of petrochemical products in 2022, compressing the export space that U.S. producers previously had targeting the Chinese market. The concentrated commissioning of new capacity combined with changes in major import markets are jointly affecting the global petrochemical supply-demand balance.

Profit margin indicators show that the spread between ethylene and naphtha in Europe has narrowed by about two-thirds from the previous peak, while the equivalent spread in Japan has narrowed by about three-quarters. Basic chemicals plant utilization rates have fallen from previous levels of just above 90% to the mid-80% range, with related forecasts suggesting they could further decline to a range of 75% to slightly above 80%.

New capacity additions have not yet ended. IEEFA cited BloombergNEF forecasts indicating that global new polyethylene capacity is expected to peak in 2026, new propylene capacity is expected to peak in 2027, and the peak for new ethylene capacity may occur in 2030. The study concludes that the imbalance between new capacity and demand growth will continue to constrain petrochemical product prices, plant operating rates and corporate profitability in the coming years.