PE Inventory Declined Despite Slow Demand Recovery
In Q1 of 2023, China’s PE spot price declined first and then ramped up. Later, it moved sideways after a slight decrease. The price rise was mainly supported by crude oil prices and rising futures prices of plastic products. Therefore, market participants held a strong bullish sentiment around the Spring Festival. Despite the rising feedstock price, the arrival of some imported resources at ports was delayed affected by the inventory building during the Spring Festival, so the overall supply was under heavy pressure. In addition, the end demand recovered limitedly after the holiday, leading to the slow consumption of inventory.
According to SCI, as of H2 March, China’s PE inventory at producers declined by 42kt or 14.43% Y-O-Y. The total PE inventory at sample traders decreased by 33.3kt or 17.36% Y-O-Y. The inventory trended down from 2022 mainly because the overall supply of PE increased, intensifying the market competition. Meanwhile, the end demand recovered slowly, so purchases were limited. Therefore, producers and traders proactively reduced their inventory to ease the pressure. In Q1, affected by the Spring Festival holiday, the inventory building was seen at producers and traders. The highest level of the inventory at producers was in early February 2023 (the first week after the Spring Festival), down 18.07% from the first week after the Spring Festival in 2022. That at traders was also in early February 2023 (the first week after the Spring Festival), down 22.68% from the first week after the Spring Festival in 2022.
From Q2, 2022, China’s producers faced high costs but low profits affected by high crude oil prices, so their production enthusiasm weakened, and they proactively reduced production to lower profit losses. Therefore, the operating rate declined to around 70%. From Q4, with the crude oil price falling continuously, the pressure of high costs was eased and producers gradually improved their operating rates. In Q1, 2023, the operating rate recovered to 80%-85%, with an average of 83%, while it was still 2% lower Y-O-Y.
The demand for mulch film was in a peak season, and the operating rate was at a high level, giving certain support to the PE market. However, the demand for greenhouse film was in a slack season, and the operating rate was low. As for the other downstream industries, new orders were limited and most enterprises maintained their operating rates at lows with tepid buying appetites, giving limited support to the PE market. On the whole, the operating rates of downstream industries gradually recovered, while they showed a downtrend from 2021.
On the whole, the demand may not improve with the upcoming demand slack season in Q2. Meanwhile, the output losses caused by unit maintenance may trend up in Q2, but the products from newly added units may gradually come into the market, so the overall supply is expected to rise with imported resources. The inventory consumption will be slow amid the weakening demand. Therefore, it’s estimated that the PE price may start to fall in Q2.
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