CICC: Domestic ethylene is still in an expansion cycle, pay attention to the follow-up policies on production control in the industry

According to the Zhitong Finance APP, China International Capital Corporation (CICC) has released a research report stating that China's ethylene is still in an expansion cycle, and overseas production capacity is facing accelerated exit pressure. Based on the global capacity investment plan, it is expected that ethylene will reach a turning point after 2027. In July 2025, the Ministry of Industry and Information Technology and four other departments will jointly launch an assessment of old petrochemical facilities, with the expectation that there may be further clearance of outdated refining and ethylene capacity. The improvement of the ethylene industry in the future will primarily require controlling new capacity and reducing investment scale. If domestic and foreign policies can strictly control the total new ethylene capacity, manage the investment structure of various routes, and reorganize outdated capacity, it may stimulate the acceleration of the industry's turning point. CICC's main viewpoints are as follows: China's ethylene is still expanding, with nearly 25 million tons of projects planned for the next three years In recent years, China's ethylene capacity has been in a rapid expansion cycle, but by 2024, the ethylene equivalent gap will still exceed 21 million tons, with an import dependence of 31%. Currently, the ethylene industry continues to add new capacity, with a total planned capacity of 24.82 million tons from 2025 to 2027. It is expected that if the projects under construction are completed on schedule, the domestic ethylene gap may be basically filled by the end of 2027. Overseas capacity is exiting rapidly, with high shutdown risks in Europe and Japan/Korea Among the global oil-based ethylene production capacity, China's production capacity was relatively late to come online, and the facilities are relatively advanced; while the capacities in Europe and Japan/Korea were built earlier and are located on the right side of the global cost curve, facing higher shutdown risks. The overseas capacity expected to exit from 2025 to 2027 may reach 5.97 to 8.3 million tons, accounting for 3-4% of global capacity. Global supply pattern is being reshaped, and ethylene is expected to reach a turning point after 2027 Considering the new and exiting capacities domestically and internationally, the global net increase in capacity over the next three years is approximately 11.26 million tons, 15.65 million tons, and 8.4 million tons, with growth rates of 4.9%, 6.5%, and 3.3%, respectively, and the capacity growth rate is expected to decline after 2027. Given the annual demand growth rate of about 3.5% globally and the digestion time for new capacity, it is judged that the ethylene industry is likely to see marginal improvement after 2027. Strict control of total capacity and new routes, focusing on subsequent policies in the domestic and foreign ethylene industry The domestic refining capacity limit of 1 billion tons has been set, but the trend of reducing oil and increasing chemicals still exerts some pressure on ethylene output. In July 2025, the Ministry of Industry and Information Technology and four other departments will jointly launch an assessment of old petrochemical facilities, with the expectation that there may be further clearance of outdated refining and ethylene capacity. The improvement of the ethylene industry in the future will primarily require controlling new capacity and reducing investment scale. In the context of "anti-involution," it is recommended to continue paying attention to targeted subsequent policies in the domestic and foreign ethylene industry. If the total new capacity can be strictly controlled, the investment structure of various routes managed, and outdated capacity reorganized, it may stimulate the acceleration of the industry's turning point. Regarding targets It is recommended to pay attention to core ethylene production enterprises, including low-cost alternative route Satellite Chemical (002648.SZ), Baofeng Energy (600989.SH), private large refining enterprises Hengli Petrochemical (600346.SH), RSPC (002493.SZ), and Dongfang Shenghong (000301.SZ), as well as state-owned refining enterprises Shanghai Petrochemical (600688.SH) Other related targets include Huajin Co., Ltd. (000059.SZ). Risk Factors Rapid release of new production capacity; policy implementation falling short of expectations; significant decline in oil prices