China’s Expansion Reshapes the Regional Balance
Asia’s petrochemical industry is undergoing a deep structural transformation, driven above all by China’s rapid and sustained expansion in capacity. Over the past several years, China has moved from being one of the world’s largest importers of olefins and polymers to a major regional exporter, fundamentally altering trade flows across Asia.
China now accounts for a substantial share of global demand for ethylene, propylene, and aromatics. At the same time, new large-scale, integrated oil-to-chemicals and coal-to-chemicals complexes continue to come online. Companies such as Sinopec, Rongsheng, Hengli, and Shenghong have invested heavily in world-scale sites that combine refining, cracking, and downstream conversion. These projects operate with significant advantages in feedstock flexibility, labour cost, and economies of scale.
Slower domestic consumption adds another layer of complexity. Even as demand moderates, new capacity continues to rise, pushing more Chinese material into export markets. In 2024, China became a net polypropylene exporter for the first time, marking a symbolic shift in Asia’s supply landscape. By 2025, Southeast Asia had emerged as its largest export destination.
Trade Patterns Shift Under Geopolitical Pressures
Geopolitics is amplifying the changes. Tariffs imposed by the U.S. and EU on a wide range of Chinese chemical products have restricted access to Western markets. As a result, a growing share of Chinese output is being redirected into Asia.
Regional trade frameworks are reinforcing this trend. Agreements such as RCEP and the enhanced ASEAN–China FTA provide tariff-free entry across much of the region, lowering barriers and strengthening China’s competitive position. Traditional exporters such as South Korea, Japan, Taiwan, and Singapore face increasing difficulty defending their market share in nearby markets where volumes are rising but margins are thinning.
Producers Across Asia Respond With Restructuring
With excess supply pressuring profitability, producers across Asia are restructuring aggressively.
South Korea: Large-Scale Capacity Cuts
South Korea, one of the region’s major ethylene producers, has seen utilisation rates fall sharply. Under government coordination, leading companies have agreed to remove several million tonnes of naphtha-cracker capacity by 2025. This includes idled lines from LG Chem and Lotte Chemical and a broader push under a national restructuring policy aimed at permanently retiring inefficient assets.
Japan: Consolidation and Strategic Retreat
Japan is also reshaping its industry. Major producers have announced the consolidation of their polyethylene and polypropylene operations to eliminate overlap. Japanese companies are gradually shifting away from bulk commodities and redirecting investment into higher-margin businesses such as specialty materials, healthcare, life sciences, and advanced chemistry.
Southeast Asia: Intensifying Competition
Southeast Asian producers, once strong exporters to China, are now facing direct competition from Chinese redirection. Singapore, Malaysia, and Thailand—home to sophisticated multi-product hubs—are seeing their export roles challenged as regional prices weaken and domestic production increasingly competes with lower-cost imports.
A Strategic Shift Toward Specialisation and Sustainability
Across the region, the industry is moving away from a commodity-driven model toward more specialised and value-added segments. This includes advanced polymers, engineered materials, biobased products, chemical recycling, and low-carbon solutions.
Producers are increasingly targeting sectors such as electronics, medical technology, renewable energy, and high-performance manufacturing—areas with more stable growth and stronger pricing power. Environmental regulations in key markets, including Europe and North America, are also reshaping investment decisions, pushing companies to adopt cleaner technologies and reduce carbon intensity throughout their operations.
Outlook: Navigating a Future Defined by Surplus and Transformation
Overcapacity is expected to remain a defining feature of the global petrochemical market through at least 2027–2028. Financial pressure is already visible, with reports indicating significant solvency risks among smaller and mid-sized producers in several Asian markets.
Looking ahead, the direction of the region’s industry will be guided by three long-term forces:
1. Consolidation
More inefficient plants will be permanently shut, and mergers may increase as companies pursue scale and cost efficiency.
2. Specialisation
Investment will shift toward differentiated materials with stronger demand fundamentals and more resilience to price cycles.
3. Sustainability
Lower-carbon production, circular feedstocks, and closer alignment with downstream industries will become essential for competitiveness in global markets.
For producers in Korea, Japan, and Southeast Asia, long-term resilience will depend on investing in fewer—but more advanced—plants, building deeper downstream integration, and focusing on higher-value, lower-emission products. These strategic shifts will be critical to navigating a regional market increasingly shaped by China’s scale, cost advantages, and growing influence.