Chinese Refining and Petrochemical Companies Invest Billions in High-End Chemicals for Solar Panels and Lithium-Ion Batteries

Chinese refining and petrochemical companies are investing billions of dollars to produce high-end chemicals for solar panels and lithium-ion batteries, as they seek to profit from the growing demand for energy transition technology.

These investments demonstrate China's efforts to reduce its dependence on imports and further consolidate its dominant position in the renewable energy and electric vehicle supply chain. This move puts Chinese firms in competition with Dow Chemical, Exxon Mobil, and BASF in the critical materials production sector.

Industry executives and analysts say that companies such as Wanhua Chemical, Zhejiang Petrochemical (ZPC), Hengli Petrochemical, and state-owned oil giant Sinopec are leading this shift.

They are shifting from producing more basic petrochemical products used in polyester fabrics and plastic packaging to producing higher-value products such as polyolefin elastomers (POE) for protecting solar panel cells, ultra-high molecular weight polyethylene for lithium-ion battery separators, and carbon fiber for wind turbine blades.

Kelly Cui, chief analyst at consulting firm Wood Mackenzie in Shanghai, said, "Overcapacity of bulk chemicals and weak demand, as well as rapidly growing industries such as China's solar and electric vehicle sectors, are key drivers for companies to expand into high-end, high-performance materials."

After years of rapid expansion of petrochemical capacity, China's polyethylene and polyester markets are oversupplied, which to some extent is driving this shift.

This move is also in line with the Chinese government's efforts to promote breakthroughs in key new material production technologies and strengthen the domestic supply chain, while consolidating China's position as the world's largest producer of electric vehicles, electric vehicle batteries, and solar panels.

Zhao Tongyang, deputy chief engineer of the China Petroleum and Chemical Planning Institute, said, "Companies are shifting to serve the new energy sector, which China's manufacturing industry is already leading."

Officials from three companies, Sinopec, Hengli, and smaller refiner Shandong Shangbu Luda Chemical, told Reuters that they are each investing billions of dollars to build comprehensive facilities for producing new materials, expected to begin operations around 2025.

China's largest oil refiner and basic chemical producer, Sinopec, is shifting its investment to high-end chemicals such as ethylene vinyl acetate (EVA) for solar panels, large bundles of carbon fiber for airplanes, and lighter and stronger wind turbine shafts.

"China no longer lacks bulk commodity chemicals, and has entered the cost competition stage," said a representative from Hengli Petrochemical. The company is investing RMB 20 billion ($2.77 billion) to build a chemical park next to its petrochemical factory in Dalian, northeastern China.

The unnamed Hengli representative said the new factory plans to produce engineering plastics, raw materials for biodegradable plastics, and electrolytes for lithium-ion batteries, as well as plastics for battery separators.

According to a report in the China Chemical News in June, Wanhua Chemical established a dedicated battery technology department at the end of 2022 and announced in May that it will spend RMB 3.4 billion ($470 million) this year to purchase materials for lithium-ion battery anodes, cathodes, and electrolytes.