Polyethylene Supply and Demand Imbalance in 2025, Excess Situation Unchanged in 2026

January 4th, according to news,

Overall trend: In 2025, polyethylene prices will experience volatile downward movements throughout the year, with the pace accelerating toward the end of December as prices hit their lowest point. The price centers of the three major polyethylene varieties continue to shift downward. Both LLDPE and HDPE have weakened in tandem, while LDPE has followed a pattern of “initial moderate decline, a small rebound in the middle period, and a noticeable drop at year-end.” Among them, LLDPE has seen the deepest price decline. The core contradiction facing polyethylene is primarily an imbalance between supply and demand, with cost collapses playing a secondary role. By year-end, prices have reached their lowest levels for the year.

**

Core contradiction: Primarily driven by supply-demand imbalance, with cost collapse playing a secondary role.

I. Supply Side: Production capacity is being released in a concentrated manner, exacerbating oversupply.

**

Capacity Expansion and Acceleration: In 2025, China’s new polyethylene (PE) capacity will exceed 5 million tons, with a capacity growth rate of approximately 16%. New facilities, including those at Guangxi Petrochemical and ExxonMobil Huizhou, are entering the commissioning phase one after another. From January to November, production increased by +18.85% year-on-year, putting continued upward pressure on supply.

Construction Starts and Inventory: In the second half of the year, the construction start rate was around 85% (lower than in previous years). However, the increase in new production capacity far exceeded the volume lost due to maintenance shutdowns. As a result, corporate and societal inventories remain high, forcing petrochemical companies and traders to lower prices and reduce inventory levels.

External Shocks: Influx of low-priced supplies from the Middle East, coupled with import substitution and price competition, further depress Chinese prices.

**

II. Demand Side: Downstream demand is weak, and willingness to stock up is low.

**

Low operating rates: Throughout the year, downstream industries such as agricultural films, packaging films, pipes, and injection molding have generally maintained operating rates in the 30% to 55% range. Order growth has been limited, and the "buy as needed" approach has become the mainstream practice.

Seasonal characteristics have weakened: The traditional peak season effects of "Golden March and Silver April" and "Golden September and Silver October" are not pronounced in China.

**

III. Cost Side: Declining crude oil prices + intensified process competition are driving overall weakening.

**

Crude oil linkage: The cost of ethylene feedstock produced from crude oil has fallen in tandem with crude oil prices, while the profit margin for polyethylene (PE) produced from coal has shifted from profitability in the first half of the year to losses. Expansion of coal-to-chemicals capacity has led to a surge in low-priced supply, putting downward pressure on prices as oil-based and coal-based PE production compete with each other, further driving down the price center.

**

2026 Forecast:

I. Supply Side: Capacity expansion continues, with the pace shifting from low in the early period to higher later on.

**

1. New Capacity and Commissioning Schedule: In 2026, new capacity will reach approximately 6.15 million tons, representing a growth rate of 15.28%. The newly added capacity will be concentrated in the second half of the year, following a commissioning schedule characterized by “low in the first half and high in the second half.”

2. Start of Operations and Production: From January to November 2025, China’s cumulative polyethylene (PE) production reached 30.1838 million tons, representing a year-on-year increase of 18.85%. In 2026, despite the high production base, the growth rate of output is likely to remain above 15%. However, high inventory levels and squeezed profit margins will compel some high-cost production units to reduce output or undergo maintenance.

**

II. Demand Side: Domestic demand growth is weak, and there is an urgent need to rely on exports for absorption.

**

With the slowdown in domestic demand growth, apparent consumption is expected to reach 41.5 million tons, representing a year-on-year increase of 7.8%, yet falling short of the supply growth rate. Although seasonal fluctuations in demand persist in key downstream sectors such as agricultural films and packaging films, the overall increase remains limited, making it difficult to absorb the rapidly growing supply. Exports have become a crucial pressure-relief valve: Against the backdrop of severe overcapacity, actively expanding into overseas markets has become an inevitable choice for the industry.

**

III. Costs and the Macro Environment: Prices Under Pressure, Industry Accelerating Its Transformation

**

Cost support is fragile: The price of polyethylene’s primary raw material—crude oil—is highly volatile, influenced by geopolitical factors and other variables. Against the backdrop of oversupply in both supply and demand, cost factors are unlikely to provide solid support and may instead become a driver of downward price pressure.

Macro and Policy Implications: Whether the “anti-involution” policy—designed to eliminate outdated production capacity—can be effectively implemented and reverse the oversupply situation remains a major uncertainty in 2026.

Industry Accelerates Transformation: Fierce competition will force the industry to shift from "scale expansion" to "quality improvement." The competitiveness of future enterprises in China will be reflected in high-end, differentiated products, and integrated cost control.

2026 Outlook: Continued Capacity Expansion, Sustained Supply-Demand Slack—Short Term: Pre- and Post-Spring Festival inventory buildup by downstream users may trigger a modest rebound, but this will hardly alter the medium- to long-term oversupply situation. Long Term: In 2026, pressure to expand capacity will remain, potentially prolonging the supply-demand contradiction and limiting room for price increases. Particular attention should be paid to the pace of new capacity commissioning and the trend in crude oil prices.