A complete reversal of the power balance in the petrochemical industries between Japan and China.

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An ethylene plant is a massive chemical facility that produces ethylene, a basic raw material for plastics and synthetic fibers, by thermally decomposing naphtha and other substances refined from crude oil at high temperatures. It is the heart of the modern petrochemical industry and also serves as an indicator of the scale of the industrial complex.

Since its establishment during Japan's period of rapid economic growth, ethylene plants have served as the core of domestic petrochemical complexes, supporting Japan's manufacturing industry. However, in recent years, drastic environmental changes both domestically and internationally have brought about a historical period of major transformation (business restructuring and decarbonization).

The Japanese chemical industry struggled in 2025 due to a market downturn caused by overproduction in China. The South Korean government also announced a plan to reduce its production capacity for the basic raw material ethylene by 2.7 million to 3.7 million tons by the summer of 2025. To address China's oversupply, petrochemical complexes in Japan are being consolidated. Four ethylene production facilities in Chiba will be reduced to two, and two in Kawasaki will be consolidated to one. A plan for a West Japan collaboration to integrate and consolidate facilities in Osaka and Mizushima (Okayama Prefecture) has also been indicated. In the future, the 12 petrochemical complexes in Japan will be consolidated into eight, and ethylene production capacity is expected to decrease from 6 million tons to around 4 million tons.

In 2025, concrete steps were taken to divest the petrochemical business. Mitsui Chemicals announced its intention to spin off its petrochemical business around 2027. Mitsui Chemicals and Idemitsu Kosan decided to integrate their general-purpose resin businesses with Sumitomo Chemical in 2026.

Following the US-Israeli attack on Iran on February 28, 2026, and the subsequent de facto closure of the Strait of Hormuz (the Middle East crisis), the situation surrounding China's "overproduction" of petrochemicals will undergo a dual transformation: while rising costs will put a brake on production, China will further strengthen its dominance as a "global supply base" while competitors (such as Japan) reduce production.

After the fighting began, crude oil prices surged to around $100 per barrel, and naphtha prices also jumped. China had previously been able to purchase large quantities of cheap crude oil from Iran (15-23% of its imports) while circumventing US sanctions, using it as the source of its overwhelming cost competitiveness (overproduction) in petrochemical products. However, the destruction of infrastructure due to the fighting and the closure of the Strait of Hormuz have disrupted this supply chain, forcing China to procure crude oil and naphtha at market prices. Manufacturing costs for plastic products and other items in factories within China have increased by more than 25%, putting a certain brake on the "unlimited overproduction backed by cheap raw materials" that had been in place until then.

The reason China's overproduction did not completely stop was because they rapidly shifted the raw materials for their plants from naphtha to ethane from the United States. While naphtha prices have soared in line with crude oil prices, ethane, extracted from US shale gas, has remained stable in price, making it overwhelmingly more advantageous in ethylene production, with margins approximately 10 times higher than those for naphtha. Major Chinese petrochemical companies (such as Wanhua Chemical Group) are competing to expand their imports of US ethane, which continues to support China's production capacity.

The biggest change in China is the surge in exports to other countries, such as Japan, which are facing difficulties in obtaining naphtha due to the Middle East crisis. China, which had excess production capacity (inventory) domestically, seized this opportunity to rapidly increase exports of inexpensive chemicals and plastic raw materials to Japan and other Asian markets. In March, Japan's imports of plastic raw materials from China increased by approximately 30% compared to the previous year. This indicates a complete reversal of the power balance in the petrochemical industries between Japan and China.

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