Collective Brake: Ethylene Production Cuts in China, Japan, and South Korea Signal Market Turning Point?

The petrochemical industry in East Asia is undergoing the largest restructuring in decades, as China, Japan, and South Korea are accelerating the phase-out of outdated cracking units to reduce excess ethylene capacity. Industry insiders expect that by 2027, the combined capacity withdrawal of the three countries will exceed 13 million tons, accounting for about 5%-8% of the global total. This unprecedented capacity adjustment is seen as a potential turning point to reverse the long-term oversupply situation, offering new opportunities for industry recovery.

Ethylene is the core raw material for chemicals such as plastics, fibers, and packaging, and its price directly determines the profitability of the petrochemical industry in relation to supply and demand balance. Over the past decade, the East Asian region has continuously expanded production capacity, resulting in a global ethylene market characterized by oversupply, which has significantly reduced corporate profitability. The decline in demand during the pandemic further exacerbated the excess capacity, causing the industry to hit a low point. As downstream consumption gradually recovers, countries have increasingly realized that if they do not timely reduce inefficient and outdated production capacity, they will continue to be mired in price competition, impacting the long-term sustainable development of the industry.

In China, Hunan Province issued the "Notification on the Assessment of Old Equipment in the Petrochemical Industry" in July this year, which defines equipment that has been in operation for more than 20 years as old equipment and requires a comprehensive assessment of safety, environmental protection, and energy efficiency levels. Analysts expect that out of the current total capacity of over 70 million tons in China, approximately 7.4 million tons will exit the market in the coming years. If efforts are also made to consolidate small factories with an annual capacity of less than 300,000 tons, the reduction in capacity could be even greater.

In South Korea, the government has repeatedly urged the industry to undergo strict restructuring to avoid a complete collapse. In August of this year, the top ten petrochemical companies in South Korea reached an agreement to reduce their naphtha cracking capacity by up to 25%. The South Korean government is expected to announce a more detailed reform roadmap in October to promote industry consolidation and efficiency improvement.

According to data from the South Korean Ministry of Industry, the price gap between ethylene and its main raw material, naphtha, has risen by 21% over the past three months to $211 per ton, representing a 33.2% increase compared to the average level in January.Signs of industry rebound have begun to emerge.

Japan continues its capacity rationalization policy since 2014 and recently proposed a further reduction target of 2.4 million tons by 2028. Several companies, including Asahi Kasei, Mitsui Chemicals, and Mitsubishi Chemicals, have collaborated in consortiums to explore the possibility of sharing cracking facilities or closing some facilities. At the same time, companies such as Cosmo Energy and Eneos have also announced plans to dismantle certain facilities between 2026 and 2028.

If these plans are successfully implemented, it will mark an unprecedented large-scale integration phase for the East Asian ethylene industry. Analysts point out that this is expected to not only drive a rebound in global ethylene prices but also improve the overall profitability of the industry. As inefficient capacities gradually exit, the new round of competition will increasingly focus on technological upgrades, green processes, and high value-added segments of the industrial chain. The next few years will be a critical period for testing the effectiveness of policy implementation and corporate integration capabilities, as well as a turning point for whether the East Asian petrochemical industry can emerge from the surplus dilemma and achieve sustainable development.

For many small and medium-sized ethylene production enterprises, the current industry adjustment means unprecedented pressure. Most small factoriesSmall in scale and with outdated equipment, it is difficult to meet energy consumption and environmental standards, and there is a lack of funds and technology for upgrades. In an environment of increasingly fierce price competition, they may be forced to stop production or merge into large enterprises. Many operators worry that the capacity they have maintained through hard work for many years will be "marginalized" in the wave of consolidation, while also hoping for more substantial support in financing, technological transformation, and mergers and acquisitions collaboration. Finding a practical survival path between "retreat" and "stay" will be their most challenging decision in the coming years.