China Sets Growth Path for Petrochemical Sector Amid Global Industry Reshuffle

On 26 September 2025, A coalition of seven Chinese government departments, led by the Ministry of Industry and Information Technology, has issued a definitive work plan to stabilise and transform the nation's vast petrochemical and chemical industry.

The 'Work Plan for Stabilising Growth in the Petrochemical and Chemical Industry (2025-2026)', released on 26 September, formally designates the sector as a key priority for the New Technical Transformation Pilot Programmes in manufacturing cities. It establishes an explicit target for the industry's value-added output to achieve an average annual growth rate of over 5% between 2025 and 2026.

Central to the plan is the principle of 'controlling refining, reducing oil, and increasing chemicals'. It mandates strict limits on new refining capacity, rigorous implementation of capacity reduction and replacement mechanisms, and careful management of the scale and pace of new ethylene and paraxylene (PX) projects.

The policy prioritises state support for energy-saving and carbon-reduction retrofits of ageing equipment, as well as demonstration projects aimed at 'reducing oil and increasing chemicals.' The overarching goal is to boost the yield of chemical feedstocks, reduce refined oil output, and steer the industry toward a more high-end, green, and intensive development model.

This initiative aligns with a directive from the Central Financial and Economic Affairs Commission in June 2025 to 'address low-price disorderly competition.' The sector is now seen at a critical point in a renewed drive against internalised, fragmented competition. Market analysts believe the industry must transition from 'scale competition,' using capacity control policies to force a shift from 'quantity growth' to 'quality enhancement'.

Corporate Performance Signals Cyclical Shift

The industry's changing dynamics appear to be reflected in corporate earnings. Rongsheng Petrochemical, a major private enterprise in the sector, released its third-quarter report for 2025, showing a dramatic profit surge.

In the first three quarters of the year, the company reported operating revenue of RMB 227.815 billion. Its net profit attributable to shareholders reached RMB 888 million, with the third-quarter alone contributing RMB 286 million. This third-quarter figure represents a staggering year-on-year increase of 1,427.94% and a quarter-on-quarter rise of 1,992.91%. This sharp uptick is widely interpreted as a signal that a cyclical inflection point has arrived for China's refining and petrochemical sector.

Domestic Capacity Capped as Industry Consolidates

The year 2025 marks a definitive turning point, with China's National Development and Reform Commission imposing a hard cap of 1 billion tonnes on the nation's crude oil primary processing capacity. With 2024 refining capacity already at approximately 950 million tonnes, the expansion wave is effectively over.

Official statistics reveal the scale of the consolidation challenge: approximately 48.8 million tonnes of small-scale capacity (under 2 million tonnes) remains active, accounting for about 5% of the total. A further 145 million tonnes of capacity, representing about 15% of the total, falls in the 2 million to 3 million tonnes per annum range.

Ageing infrastructure is another focus. By 2025, facilities over 20 years old will constitute roughly 12% of China's ethylene capacity and 21% of its propylene capacity. The planned elimination or retrofitting of this outdated capacity is expected to accelerate industry consolidation towards larger-scale, higher-end production.

Global Supply-Side Reaches Inflection Point

Simultaneously, a significant rationalisation of capacity is underway in other countries, tightening the global supply side.

In South Korea, LG Chem decided on 14 October to close its Daesan HDPE plant, a move attributed to severe profitability challenges. This closure is seen as the start of a broader 'structural downsizing': Lotte Chemical is negotiating to sell a 50% stake in its Daesan No. 2 cracker; YNCC indefinitely suspended a 500,000-tonne-per-year ethylene plant in August; and Hanwha Total plans to close its No. 1 aromatics complex by 2026. The Korea Institute for Industrial Economics and Trade forecasts that by 2027, South Korea will have cumulatively withdrawn 2.2 million tonnes/year of ethylene and 1.8 million tonnes/year of polyethylene capacity.

In Europe, the energy crisis and conflict in Ukraine have driven up costs, causing the chemical industry's capacity utilisation rate to fall from nearly 82% to 74% in the first quarter of 2025. By 2024, European refining and ethylene capacities had declined to 15.02 million barrels per day and 21.27 million tonnes per annum respectively, representing cumulative exits of 770,000 barrels per day and 1.04 million tonnes per annum since 2020. The exodus is accelerating, with 11 ethylene plants totalling 5.7 million tonnes of capacity scheduled for closure in 2025 and beyond, involving giants like BASF, Dow, LyondellBasell, Shell, and Total.

In the United States, the cost advantage from the shale revolution is waning. After a 55% surge in ethylene capacity to 44.68 million tonnes per annum between 2016 and 2024, the industry's return on equity has rapidly declined to 6%, with some enterprises reporting losses in Q1 2025. With the exception of one major project, US ethylene expansion has largely concluded.

New Prosperity Cycle Gathers Momentum

Data from BP and RBN indicates that from 2025 to 2029, the annual average increase in global refining capacity will be only 420,000 barrels per day-less than half the average of the past decade. Net new ethylene capacity in other countries is also slowing significantly.

Market observers suggest that intensified Chinese industrial policy, combined with coordinated capacity adjustments in major global markets, could position the global petrochemical sector to enter a new upward cycle around 2026. As the call to 'counter internalisation' aligns with global capacity rationalisation, an era of high-quality development for established industry leaders possessing scale, technology, and carbon efficiency advantages may be underway.