China's new EO capacities outstrip demand growth in 2023

EO/EG producers frequently diverted ethylene to EO unit due to the persistent loss in EG production in 2022. In 2023, ZPC, Hengli, Satellite, ZRCC and BASF-YPC will also divert more ethylene to styrene or EO units. MEG supply of those producers will decrease.

ZPC plans to start its new styrene unit in Q2, 2023 and is likely to producer more SM due to better margins. Hengli plans to start its EO unit in May and will equip downstream ethanol amine and DMC. The captive ratio of EO will be around 60-70%. The ethylene diversion of this unit is uncertain. Other units plan to produce more EO after upgrading and we should also pay attention to how many EO the market can consume.

EO capacity is expected to increase by around 2 million mt/year in 2023, concentrated in East China.

New EO capacities in 2023

Sanjiang, Hengli and Hainan have downstream units equipped, but will still sell partly in to the market. EO demand increment is estimated at 1.4-1.5 million tons in 2023, less than the rise in supply increase. The competition in EO market would be fierce in 2023 due to the capacity expansion, restrictions on hazardous chemical storage and the short transport distance, particularly for units without downstream equipped devices.

In 2022, operating rate of EO/EG co-production producers remained high, even in the slack season prior Chinese New Year holiday. In 2023, the ethylene diversion into EO/EG unit will be more frequent considering margins and EO consumption with the new capacity coming in.