Understand the Entire Chemical Industry Chain in One Article!

Understand the Entire Chemical Industry Chain in One Article!

We often say that the chemical industry is the “ballast” of the national economy.

From the synthetic-fiber clothing we wear and the plastic bottles we hold, to car tires and the casings of home appliances, all the way to new energy batteries, semiconductor chips, and aerospace materials—every aspect of our daily lives, from clothing to food, housing, and transportation, relies on the support of the chemical industry.

However, the chemical industry’s supply chain is long, has many branches, and involves complex processes. From upstream raw materials to end products, the process often involves more than a dozen—or even dozens—of steps. Even those who have been in the industry for many years may not be able to fully grasp the entire chain.

I. The Three Major Sources: The “Roots” of the Chemical Industry—It All Starts Here

The entire chemical industry is built upon three core raw materials: petroleum, coal, and natural gas. These form the three main pillars of the chemical sector and serve as the “lifeblood” for all chemical products.

1. Petrochemicals: The Primary Pillar of the Chemical Industry

Petrochemicals represent the most central sector of the global chemical industry and serve as the primary pillar of China’s chemical sector, with the industry’s output value accounting for more than 60% of the nation’s total petrochemical and chemical output.

According to data from the National Bureau of Statistics of China, China’s crude oil processing volume reached 732 million metric tons in 2025, a year-over-year increase of 3.8%, solidifying its position as the world’s second-largest oil refining nation. Annual refined oil product output (combined gasoline, kerosene, and diesel) reached 387 million metric tons, while naphtha production reached 189 million metric tons, providing ample raw material security for the petrochemical industry.

Once crude oil enters a refinery, it first undergoes atmospheric and vacuum distillation to separate bulk petroleum products such as gasoline, kerosene, diesel, lubricating oil, paraffin, and asphalt. Among these, naphtha and refinery dry gas are the most critical raw materials for the petrochemical industry; approximately 75% of China’s ethylene and 60% of its propylene are derived from the naphtha cracking process.

Through naphtha cracking, the chemical industry obtains its most essential basic raw materials—the “three alkenes and three aromatics”: ethylene, propylene, and butadiene; as well as benzene, toluene, and xylene. Starting from these basic raw materials, the industry extends downward to produce over a hundred intermediate products, such as polyethylene, polypropylene, ethylene glycol, and styrene, ultimately covering nearly all chemical product categories—including plastics, rubber, fibers, coatings, adhesives, and fine chemicals—with end-use applications spanning every aspect of the national economy, from the automotive and electronics sectors to textiles, building materials, pharmaceuticals, and aerospace.

It can be said that without the petrochemical industry, there would be no modern industrial system.

2. Coal Chemical Industry: A Unique Sector in China

China’s resource endowment—characterized by “abundant coal, scarce oil, and limited natural gas”—has made the coal chemical industry an indispensable and vital component of China’s chemical sector. It is also a unique sector that distinguishes China from other countries worldwide; China is the only country in the world to have achieved large-scale industrialization of modern coal chemical production.

The coal chemical industry is primarily divided into three major routes:

（1）Coking process: High-temperature dry distillation of coal produces coke, coal tar, and coke oven gas; coke is a core raw material for the steel industry. In 2025, China’s coke production reached 482 million metric tons, accounting for more than 65% of global coke output and firmly maintaining its position as the world’s leading producer. The production capacity for the deep processing of coal tar and coke oven gas also exceeded 20 million metric tons per year, enabling the further production of basic chemicals such as benzene, methanol, and naphthalene.

（2）Coal Gasification Route: This is currently the most mainstream route in coal chemical industry. Coal is gasified to produce synthesis gas (carbon monoxide + hydrogen), which is then used as a feedstock to produce methanol, synthetic ammonia, ethylene glycol, olefins (ethylene/propylene), and other products, thereby achieving a “coal-to-chemicals” process that complements the petrochemical industry. By the end of 2025, China’s total coal-to-olefins production capacity reached 21.8 million metric tons per year, accounting for 22% of the nation’s total olefins production capacity; coal-to-ethylene glycol capacity reached 11.2 million metric tons per year, accounting for 41% of the nation’s total ethylene glycol production capacity; and total methanol production capacity exceeded 100 million metric tons per year, with coal-based methanol accounting for over 90% of this total, firmly maintaining the world’s leading position in terms of production scale.

（3）Coal liquefaction: This is divided into direct and indirect liquefaction, with the core objective being to convert coal into petroleum products such as gasoline and diesel to supplement petroleum resources. Currently, China’s total coal-to-oil production capacity has exceeded 9 million metric tons per year.

Today, against the backdrop of the “dual carbon” goals, modern coal chemical industry is undergoing a transformation toward low-carbon and high-end production, with sectors such as coal-based biodegradable materials and high-end chemicals emerging as new growth drivers.

3. Natural Gas Chemicals: A New Direction Toward Clean and Low-Carbon Production

As a clean and low-carbon fossil fuel, natural gas represents a key direction for the green transformation of the chemical industry. It is also the second-largest source of chemical feedstock globally after petroleum, with approximately 25% of the world’s chemical products using natural gas as their primary raw material.

According to data from China’s National Development and Reform Commission (NDRC), China’s apparent natural gas consumption is projected to reach 415 billion cubic meters in 2025, representing a year-on-year increase of 6.2%. Of this, natural gas used in the chemical industry accounts for approximately 14.8%, making it the third-largest consumption sector for natural gas, trailing only city gas and power generation.

The core process in natural gas-based chemical production involves first converting natural gas into synthesis gas, which is then used to produce bulk products such as methanol, synthetic ammonia, and urea. Additionally, natural gas can be directly converted into basic raw materials like acetylene and ethylene, which are further processed into products such as acetic acid, formaldehyde, PTA, and PTMEG, serving end-use sectors including textiles, pesticides, building materials, pharmaceuticals, and new energy. Currently, the natural gas route accounts for approximately 18% of China’s synthetic ammonia production capacity and about 7% of its methanol production capacity, indicating significant room for growth.

Compared to coal-based and petrochemical industries, natural gas-based chemical processes feature shorter production cycles and carbon emissions per unit of product that are more than 40% lower than those of coal-based chemical processes. With cleaner products, this sector is poised to seize new development opportunities amid the global trend toward carbon neutrality.

II. Seven Core Sectors: The “Backbone” of the Chemical Industry Chain

Among the basic raw materials derived from the three major sources, ethylene, propylene, C4, C5, and toluene serve as the core “hubs” for the chemical industry chain’s downstream expansion. Each corresponds to a vast sub-industry chain and represents the most critical competitive sectors within the chemical industry.

1. Ethylene: The Undisputed “Mother of Chemicals”

Ethylene, known as the “Mother of Chemicals,” serves as a key indicator of a nation’s chemical industry development level, as measured by its production capacity and output. By the end of 2025, China’s annual ethylene production capacity will exceed 56 million metric tons, with annual output reaching 46.8 million metric tons—a year-over-year increase of 5.1%. China has consistently ranked as the world’s largest ethylene producer for many consecutive years.

Ethylene’s downstream applications span nearly all areas of general-purpose synthetic materials, with approximately 62% of domestic ethylene consumption used to produce polyethylene:

（1）Polyethylene (PE): The largest downstream application of ethylene, PE is categorized into types such as HDPE, LLDPE, and LDPE. It is widely used in films, pipes, and injection-molded products; the core raw material for everyday items like plastic bags, plastic bottles, and water pipes is polyethylene. By 2025, China’s apparent consumption of polyethylene is projected to reach 41.2 million metric tons, with the industry’s self-sufficiency rate rising from 58% in 2020 to 82% in 2025. However, the self-sufficiency rate for high-end products such as metallocene polyethylene remains below 30%, making this a key area for domestic substitution.

（2）Ethylene Oxide/Ethylene Glycol: Ethylene glycol is a core raw material for polyester fibers (polyester) and PET bottle flakes; the synthetic fiber clothing we wear and the mineral water bottles we drink from all rely on it. Ethylene oxide, meanwhile, is widely used in personal care, pharmaceuticals, polyethers, and other fields. By 2025, China’s total ethylene glycol production capacity will reach 27.5 million metric tons, with apparent consumption reaching 21 million metric tons.

（3）Styrene: It is used to produce general-purpose engineering plastics such as ABS and PS, which are core raw materials for home appliance casings and automotive interior components. By 2025, China’s styrene production capacity will exceed 18 million metric tons per year, with a self-sufficiency rate of over 95%.

（4）Vinyl acetate, vinyl chloride, etc.: These are used to produce materials such as EVA and PVC, covering multiple high-growth sectors including photovoltaic films, pipes, and profiles. China’s EVA production capacity has already exceeded 6 million metric tons per year, with a self-sufficiency rate for photovoltaic-grade EVA exceeding 85%.

It can be said that the ethylene industry chain is the “foundation” of the chemical industry.

2. Propylene: The Rapidly Growing “Wings of the Chemical Industry”

If ethylene is the “mother of the chemical industry,” then propylene is undoubtedly its “wings”—one of the fastest-growing basic chemical raw materials in recent years. By the end of 2025, China’s annual propylene production capacity will exceed 68 million metric tons, with annual output reaching 57.2 million metric tons—a year-over-year increase of 4.7 percent. China’s share of global production capacity will exceed 40 percent, firmly maintaining its position as the world’s leading producer.

Propylene’s downstream applications are equally extensive; approximately 70% of domestic propylene consumption is used to produce polypropylene:

（1）Polypropylene (PP): The largest downstream application for propylene and one of the most widely produced general-purpose plastics, it is found almost everywhere—from nonwoven fabrics used in face masks and woven plastic bags for food packaging to modified plastics for automobiles and home appliance components. By 2025, China’s apparent consumption of polypropylene is projected to reach 36.8 million metric tons, with an industry self-sufficiency rate exceeding 90%. Among these, high-end automotive-grade modified polypropylene and specialty materials for lithium-ion battery separators remain key areas for domestic substitution.

（2）Propylene oxide: Primarily used to produce polyether polyols, which are then used to manufacture polyurethane flexible and rigid foams. These foams are widely used in furniture foam, automotive insulation, and building insulation. By 2025, China’s propylene oxide production capacity will exceed 7.2 million metric tons per year, accounting for over 55% of the global total.

（3）Acrylonitrile: A key raw material for ABS engineering plastics and polyacrylonitrile fibers (acrylic fiber), as well as an important precursor for high-end carbon fiber. By 2025, China’s acrylonitrile production capacity will exceed 4.2 million metric tons per year, with a self-sufficiency rate of over 90%.

（4）crylic acid and esters: Widely used in coatings, adhesives, and superabsorbent polymers (SAP—the core absorbent material in diapers and sanitary napkins), among other fields. By 2025, China’s acrylic acid production capacity will exceed 4.5 million metric tons per year, accounting for over 60% of global capacity.

In recent years, with the development of technologies such as propane dehydrogenation (PDH) and coal-to-olefins, the feedstock routes for propylene have become more diversified. Currently, the PDH route accounts for 26% of total propylene production capacity, while the coal-to-olefins route accounts for 21%. The industry’s production capacity and application scenarios continue to expand.

3. C4 Chemicals: An Undervalued Treasure Trove

C4 fractions, though byproducts of refineries and cracking units, constitute a specialized industrial chain with immense value. By 2025, the total volume of C4 resources from Chinese refineries and cracking units will exceed 52 million metric tons, and this volume continues to grow steadily alongside the ongoing expansion of refining and ethylene production capacity.

Core products in the C4 industry chain include butadiene, isobutylene, n-butylene, and butane:

（1）Butadiene: The most critical product in the C4 industry chain, it serves as the key raw material for cis-polybutadiene rubber and styrene-butadiene rubber (SBR). These two types of rubber account for over 70% of tire-grade rubber and represent an “essential demand” for the automotive tire industry. Additionally, butadiene is a key raw material for elastomers such as ABS and SBS. By the end of 2025, China’s butadiene production capacity will exceed 6.2 million metric tons per year, with output reaching 4.65 million metric tons. China’s share of global production capacity will exceed 45%, while its share of global production capacity for cis-polybutadiene and styrene-butadiene rubber will exceed 50%. The domestic self-sufficiency rate for synthetic rubber used in tires will exceed 92%.

（2）Isobutylene: Used to produce MTBE (a gasoline anti-knock additive), butyl rubber, polyisobutylene, and other products. Among these, butyl rubber is a core raw material for pharmaceutical rubber stoppers and tire inner tubes. China’s butyl rubber production capacity has exceeded 200,000 metric tons per year, ensuring self-reliance and control over core products.

（3）n-Butane/n-Butene: These can be used to produce maleic anhydride, BDO, and other products. BDO, in particular, has been a hot product in recent years and serves as a core raw material for biodegradable plastics such as PBAT, spandex, PTMEG, and PBT engineering plastics, with end-use applications spanning high-growth sectors including new energy, textiles, and electronics. By the end of 2025, China’s BDO production capacity will exceed 4.3 million metric tons per year, accounting for 72% of global total capacity. As the world’s largest BDO producer, China has also ensured an ample supply of raw materials for the development of its biodegradable plastics industry.

III. Understanding the Chemical Industry Chain: The Underlying Logic from Raw Materials to End Products

By analyzing the latest industry data, we can clarify the underlying logic of the chemical industry:

The entire chemical industry chain is, in essence, a value-added chain that extends “from energy to materials, and from basic to high-end products.”

The upstream segment consists of energy and raw materials—centered on coal, petroleum, and natural gas—which determine the costs and supply of the entire industry chain. China has established the world’s most comprehensive raw material security system, with its crude oil refining, advanced coal processing, and natural gas utilization all consistently ranking among the world’s leading levels;

The midstream segment consists of basic chemicals—centered on olefins, aromatics, synthesis gas, and methanol—and serves as the “hub” of the entire industry chain, bridging the upstream and downstream sectors. Currently, China’s production capacity and output for dozens of bulk chemical products—including ethylene, propylene, methanol, PX, and PTA—consistently rank first globally, demonstrating the world’s most comprehensive midstream support capabilities;

The downstream sector focuses on materials—centered on synthetic resins, synthetic rubber, synthetic fibers, and fine chemicals—and directly serves end-user applications. By 2025, the output value of China’s new chemical materials is projected to exceed 2.2 trillion yuan, with an average annual growth rate of over 12%, and the self-sufficiency rate for high-end chemical products continues to rise;

The end-user sector covers all areas of the national economy, including clothing, food, housing, transportation, new energy, semiconductors, aerospace, and biopharmaceuticals, and serves as the core pillar supporting the transformation and upgrading of the manufacturing sector.

Competition in the chemical industry essentially unfolds along two fronts: one is cost competition in the upstream sector—whoever can secure cheaper raw materials and achieve lower production costs will gain a firm foothold in the commodities market; the other is technological competition in the downstream sector—whoever can break through the technical barriers of high-end products and achieve domestic substitution will capture higher value-added and secure a leading position in the industry.