In a bold leap of faith, Chinese oil refining and petrochemical companies are reaching deep into their pockets, investing a whopping amount to produce premium chemicals. Their target? Solar panels and lithium-ion batteries. They’re banking on the booming demand for technologies that aid in transitioning to greener energy.
The hefty investments show China’s growing determination to lower its reliance on imports. The goal? To further strengthen its foothold as a leading player in renewable energy and electric vehicle supply chains. It’s no walk in the park though; they’re up against industry titans like Dow Chemical, Exxon Mobil, and BASF.
Steering this ship of change are companies like Wanhua Chemical, Zhejiang Petrochemical Corp (ZPC), Hengli Petrochemical, and the state’s own oil powerhouse, Sinopec Corp. They are veering away from producing basic petrochemicals used in polyester fabrics and plastic packaging. Instead, they’re setting their sights on more valuable products like polyolefin elastomers (POE), which give solar panels their protective cover, ultra-high-molecular-weight polyethylene for lithium-ion battery separators, and carbon fibre for wind turbine blades.
Kelly Cui, a Shanghai-based principal analyst with consultancy firm Wood Mackenzie, summed it up best. “The pressure of oversupply and weak demand for basic chemicals, combined with China’s thriving solar and electric vehicle industries, are propelling companies to dive into high-end, high-performance materials.”
With a saturated market for polyethylene and polyesters due to a rapid capacity expansion in recent years, the companies are motivated to make the switch. This move is perfectly aligned with Beijing’s call for companies to overcome the technical hurdles in producing new key materials. It aims to bolster domestic supply chains and rides on the wave of China’s reputation as the world’s top manufacturer of electric vehicles, EV batteries, and solar panels.
“Companies are shifting their gears towards the new energy sectors, where China already holds the reins in manufacturing,” said Zhao Tongyang, deputy chief engineer at the China National Petroleum and Chemical Planning Institute.
ZPC, Hengli, and the smaller refiner Shandong Chambroad Petrochemical are constructing multi-billion-dollar complexes to produce these innovative materials. The expected production start? Around 2025.
Sinopec Corp, the nation’s leading refiner and basic chemicals producer, is redirecting its investments to upscale chemicals like ethylene vinyl acetate for solar panels and large-tow carbon fibre for aircraft and sturdier, lighter wind turbine shafts.
“We’re no longer in need of basic chemicals in bulk and have entered a stage of price competition,” a representative at Hengli Petrochemical stated. They’re planning a massive 20 billion yuan ($2.77 billion) chemical park alongside their petrochemical complex in Dalian, in northeastern China.
The park will primarily produce engineering plastics, raw materials for bio-degradable plastics, electrolytes for lithium batteries, and plastics for battery separators.
With a specialized battery technology unit established in late 2022, Wanhua Chemical plans to shell out 3.4 billion yuan this year for raw materials used in lithium batteries, including anodes, cathodes, and electrolytes.
By 2025, it’s expected that China’s production capacity for POE, a solar panel encapsulation material that resists UV light and outlasts EVA, will skyrocket to 1 million metric tons per year from scratch. This impressive ramp-up comes with a 20 billion yuan price tag. The demand? It’s projected to increase at double-digit rates.
The home-grown supply is anticipated to cut down China’s POE imports, which have been on a steady upward trajectory, growing by an average of 23% annually over the past five years. The country’s POE imports hit a record high of 690,000 tonnes worth 13.7 billion yuan in 2022.
Wanhua and Sinopec are expected to be China’s pioneers in commercial POE production. The race is on, and the early bird catches the worm. “Whoever moves faster will win as there could be a surplus, as many are planning POE plants,” advised Woodmac’s Cui.
($1 = 7.1720 Chinese yuan renminbi)