By Yan Fengli, OilChem China
In recent years, the ultra-high molecular weight polyethylene (UHMWPE) industry has gained more and more attention. However, the rapid development of general plastics has also led to structural contradictions and overcapacity in mid- and low-end products, which has resulted in intense homogeneous competition and even financial losses for some units. In order to improve the competitiveness of enterprises and product profit margins, more enterprises within and outside the petrochemical industry have shifted their focus to niche high-end fields such as polyolefin elastomer (POE), metallocene polyethylene (mLLDPE) and UHMWPE. Furthermore, enterprises are devoting efforts to upgrading their product structures, enhancing enterprises competitiveness in terms of specialization, differentiation, high-end offerings, environmental sustainability, and customization, to help enterprises seize opportunities amid fierce competitions in the future.
Three stages of industry development
The development of China's UHMWPE industry can be divided into three stages in general (see Figure 1). The first stage, from 1990 to 2018, saw a breakthrough in China's UHMWPE production after Shanghai United Chemical Industry Research Institute obtained independent intellectual property rights in 1990. From then on, private enterprises have begun to put into production since 2004 and played a dominate role before 2018, representative enterprises including Shanghai Lianle Chemical Industry Science and Technology Co., Ltd., Jiujiang Zhongke Xinxing New Materials Co., Ltd., Zhongxi New Material (Anhui) Co., Ltd. The second stage is from 2018 to 2022. In 2018, the operation of Yangzi Petrochemical Co., Ltd. marked the entry of Sinopec and PetroChina into UHMWPE production. Since then, companies represented by Sinopec Yanshan Petrochemical Co., Ltd., PetroChina Liaoyang Petrochemical Co., Ltd., and PetroChina Daqing Petrochemical Co., Ltd. have started production based on their existing high-density polyethylene (HDPE) units. This stage witnessed the rapid development of China's polyethylene industry. In order to solve the structural contradiction of surplus of low-end products and shortage of high-end products, companies have shifted the industrial structure to differentiation and high-end, making important decisions to seize the future consumer market in advance. It was also during this stage that UHMWPE gained attention from both within and outside the industry.
Figure 1 Development of China’s UHMWPE industry
Enterprises within and outside the industry started to make plans and layout for the third stage (2022-2023) after recognizing the high profit margin and broad application prospects of UHMWPE. Starting from 2022, the industry entered an acceleration period, with a compound annual growth rate (CAGR) in production capacity of 17.87% from 2020 to 2022. In December 2022, Jiangsu Sierbang Petrochemical Co., Ltd. newly added a 20 000 t/a UHMWPE unit. What’s more, Levima Group Co., Ltd.’s 20 000 t/a UHMWPE unit is expected to be put into production in December this year. Private enterprises in the past two years have also begun the second and third phases of capacity expansion. In addition, petrochemical companies have utilized their existing HDPE units to produce UHMWPE, further accelerating the development of the industry.
Production capacity to be released triggers industry concerns
According to statistics, it is expected that more than 600 000 t/a of UHMWPE units will be put into operation in China from 2024 to 2027. The significantly increased production capacity will fully meet China's UHMWPE consumption demands, which triggered concerns within the industry regarding the potential pressure that may arise after the release of future production.
In response to the above questions and concerns, the author conducted research on both the companies with production plans in the future and the existing companies in the industry.
First, there is a concern of whether the planned production capacity can be achieved as scheduled. UHMWPE has always been positioned as the high-end and niche field in the industry because of two critical factors - technology barrier and catalyst barrier. One is the technical barrier. At present, China mostly adopts low-pressure slurry kettle polymerization process, which is mainly batch method. This method has certain disadvantages, such as poor heat removal compared to the loop continuous method, and low single-line production capacity. And the loop continuous method demands high equipment investment and high requirements on catalysts. As a result, very few domestic companies are using this process. Therefore, the batch method has low production capacity, while the loop continuous method is difficult to produce, needs complex operations, and lacks experienced senior production personnel. Due to multiple factors, the processing conditions for UHMWPE in China are currently quite harsh, escalating the cost and making it difficult to popularize.
The other is the catalyst barrier. Due to the high selling price and fewer relevant patents compared to foreign countries, China mostly uses Z-N catalysts. However, according to the principle of catalysts, the components of Z-N catalysts are usually mainly catalysts, co-catalysts, etc. The compounds in different patented products possess unique characteristics and can vary significantly from one another. As a result, Z-N catalysts have certain limitations when it comes to developing higher-performance and high-functional UHMWPE resins.
At present, China’s UHMWPE manufacturers have been lagging behind foreign manufacturers for over a decade, and many fields are still relatively restricted. Therefore, until major breakthroughs are made in key production technologies and catalysts in the next five years, the aforementioned 600 000 t/a new units may be affected by these two major barriers. There is possibility that some companies may choose to postpone or even cancel their production schedule.
Second, how to view the potential pressure that the industry may encounter after the release of future production? Industry insiders hold different views on this issue. On the one hand, there is concern about this issue. As of 2022, the UHMWPE production capacity was about 260 000 t/a, with an output of approximately 200 000 t/a (see Figure 2), and the consumption was about 300 000 t/a. Even with high expectations and optimistic projections, it is unlikely that the projected consumption in 2027 can increase rapidly enough to fully consume the output of the newly added 600 000 t/a and the current 260 000 t/a production capacity. During the investigation, some manufacturers, after seeing the supply-demand contradiction in recent years, chose to implement the project in stages, while some chose to further evaluate the project, weigh the pros and cons, postpone or even cancel their production schedule.
Figure 2 Capacity and output of UHMWPE industry in China from 2020 to 2022
On the other hand, there is the optimistic side. At present, UHMWPE faces a large part of problems that the harsh processing conditions lead to high production costs and difficulty in mass promotion. In order to tackle the difficulties in the industry, in recent years, some manufacturers have collaborated with universities and other research institutions to establish a comprehensive development pattern that integrates production, learning, research and application. There are great potentials to make breakthrough in the UHMWPE's difficulties with years of vigorous development.
What’s more, there is a promising prospect in the consumer field, particularly in the field of separators and fibers. Lithium battery separators, as an essential material in the new energy field, play a crucial role in lithium-ion batteries and have formed a development path of simultaneous innovation and mutual promotion with the lithium battery industry. In recent years, China has been increasing its support for the lithium-ion battery industry chain and introducing a series of policies to encourage and support the development of the separator industry. Therefore, new energy and photovoltaic industries are facing opportunities for rapid development, which, in turn, will drive the development of the lithium battery separator industry in the upstream.
Fiber materials are widely used in various fields, including marine, aerospace, and civil textiles. On the one hand, UHMWPE fiber is an important material. On the other hand, fiber products such as cool-feeling fabrics are mostly exported to Japan, Europe and the United States. The domestic consumption is in small proportion, mainly because high cost leads to high selling price, as well as the preference and selection of traditional pure cotton fabrics. With the promotion of product and improvement of consumption, civil fiber and other fields will bring significant market demand for UHMWPE fiber.
In 2022, China consumed 100 000 tons of diaphragm material, and 40 000 tons of fiber material, two fields accounting for nearly 50% of the industry's entire consumption (see Figure 3). As related industries continue to develop and national consumption upgrades, the consumption share of these two fields is expected to expand further. It is expected that in the next three years, the consumption of the two fields may reach about 350 000 tons. In the future, with the expansion of UHMWPE application space and scenarios, the consumption will be increased and the concerns about digestion capacity can be further alleviated after the release of production capacity.
Figure 3 Consumption proportion of UHMWPE segments in China in 2022
China's UHMWPE industry is not highly concentrated. As Sinopec and PetroChina put the UHMWPE into operation on the existing original low-voltage equipment, competition with the original private companies has become fierce, and the industry is entering the early stage of updating and iteration due to the survival of the fittest. In addition, with the vigorous development of the new energy field and the encouragement of national policies to achieve independence and localization of products in the high-precision field, downstream companies are eager for domestic high-quality raw material products. Considering these factors, it is expected that China's UHMWPE industry will continue to grow in the future. Therefore, there is no need to be overly concerned about the new production capacity plans of 600 000 t/a mentioned earlier.