How Do International Enterprises View National Efforts to Cut Production Capacity?

In recent years, China's petrochemical industry has fallen into the predicament of "involution": a large amount of new capacity has been put into operation, profits have been under long-term pressure, the operating rate of facilities has declined, and it has also triggered overseas anti-dumping investigations and regional capacity clearance.

Recently, the Chinese government has signaled its intention to rectify the issue of overcapacity in the petrochemical sector. The State Council's "Carbon Peak Action Plan before 2030" proposes that by 2025, the domestic primary oil processing capacity should be controlled within 1 billion tons, and the capacity utilization rate of major products should be increased to over 80%. The "Special Action Plan for Energy Conservation and Carbon Reduction in the Refining Industry" issued by the National Development and Reform Commission and four other departments further emphasizes the prohibition of disguised additions to refining capacity under the pretext of comprehensive heavy oil utilization, asphalt units, and other means, and requires capacity reduction and replacement. The "2024-2025 Energy Conservation and Carbon Reduction Action Plan" mandates the complete elimination of atmospheric and vacuum distillation units with a capacity of 2 million tons per year or less, and requires that by the end of 2025, refining, ethylene, and other industries with capacity below energy efficiency benchmarks complete technological upgrades or exit the market.

These measures were mentioned multiple times during the earnings calls of major international chemical companies and received a "cautious welcome."

Rapid capacity expansion triggers global turbulence.

Since 2019, China has added nearly 60% of the world's new ethylene capacity, reaching a total of 51.2 million tons per year by the end of 2024. In the coming years, nearly 20 million tons per year of new capacity will continue to be put into operation.

Cheap derivative exports lead to an increase in dumping allegations in overseas markets.

In Europe, Northeast Asia, and parts of Southeast Asia, some high-cost capacities have been forced to shut down. In Northwest Europe alone, 4.6 million tons per year of ethylene capacity have been closed or planned to be closed in the past 18 months.

How do international giants view this?

Leander Basel Industrial Company: Cautiously Optimistic

CEO Van Acker stated that Chinese polyethylene lacks global competitiveness due to high costs, and capacity expansion has led to a decline in local operating rates. He noted that the National Development and Reform Commission of China is requiring inspections of outdated facilities, and it is expected that some non-integrated, small, and inefficient cracking units will gradually be phased out.

Clariant: Positive for the high-end market

CEO Kaiser believes that the policy direction is clear: old installations that are 20 to 30 years old should be gradually closed. This will be a net positive for Clariant's business, which primarily focuses on the high-end market.

BASF: Signals of supply-side reform emerge

CEO Kamit pointed out that the Chinese government has long "avoided" the issue of overcapacity, but before the "15th Five-Year Plan", there was an intention for supply-side reform for the first time.

He expects that by 2030, China’s chemical market will experience a rebalancing.

However, BASF's new integrated site in Zhanjiang will face the current realities of overcapacity and profit margins falling short of expectations.

India Chemplast Sanmar: The Harsh Winter for PVC Is Coming to an End

The company's general manager, Shankar, stated that if the policies are effectively implemented, the PVC overcapacity issue will be resolved, and the "long cold winter" of the global PVC industry is nearing its end.

Solvay: Soda ash industry may restructure

CEO Kai Helun pointed out that soda ash plants over 20 years old may be required to upgrade or shut down, and those over 30 years old are almost certain to be phased out.

Covestro: No significant short-term impact

CEO Steilmann stated that no direct impact on the company's business has been observed so far.

The industry continues to incur losses, making reform imperative.

According to data from the China Petroleum and Chemical Industry Federation:

In the first half of 2025, losses in China's refining and petrochemical industry increased by 8.3% year-on-year.

The loss in the refining industry alone has increased by more than $1.25 billion compared to the same period last year.

Vice President Fu Xiangsheng stated that as China addresses "involution," petrochemical product prices are expected to eventually rise.

Summary

The issue of "overcapacity" in China's chemical industry has long been a problem. The recent intervention by the Chinese government is seen by international giants as a cautiously optimistic positive signal.

In the coming years, as outdated and inefficient production capacity is gradually phased out, the global chemical market may undergo structural adjustments.