How Will Environmental Policy Affect the PE Market?

How Will Environmental Policy During National Day Holiday Affect the PE Market?

Preface

October 1, 2019 is the 70th anniversary of the People's Republic of China. During this major festival, the Chinese government will take measures to make sure that the white clouds to be seen in the blue sky, and they will ensure the safe output and service during the National Day holiday. Thus, the environmental protection and the traffic safety inspections in Beijing and areas around Beijing will be stricter. Many companies have issued notices in recent days, saying that in order to create a better ecological environment and to celebrate the 70th anniversary of China, they would stop or decrease the output. So what impacts will these measures bring to the PE market?

This week, the PE market decreased after increasing. Impacted by the recent “black swan” incident in Saudi Arabia, the international oil prices surged. The LLDPE futures price increased greatly, which supported the PE spot, and the PE prices increased. The demand for the agricultural film industry entered the peak season, and the demand for the packaging film, piping, raffia and other industries inched up, and the inventory decreased obviously compared with last week. According to SCI, the PE market will mainly fluctuate within a narrow range.

A few days ago, the Ministry of Ecological Environment issued the Guiding Opinions on Strengthening Heavy Polluted Weather Response to Consolidate Emergency Emission Reduction Measures (hereinafter referred to as Opinions). The purpose is to protect the air quality and to maintain the blue sky. It is worth noting that this Opinions clarified the performance grading indicators and differentiated emergency emission reduction measures, in order to prevent simple and rude "one size fits all" output suspension and to refine the implementation of the "one factory one policy" program. For example, one certain petrochemical company in Beijing started to reduce their output by stages from September 15 to October 7, which is the first stage. There will be no output reduction measures for synthetic resin in the first stage, and the output will be reduced by 10% from September 25 to October 7, which is the second stage, and more new high-pressure devices will reduce output. However, the implementation of differentiated management does not mean weak supervision. The Chinese government will strengthen supervision and accountability, and effectively solve the problems that it takes enterprises more money to abide by the law than breaking the law. In recent years, the government has shown its determination in strengthening environmental protection, especially in the Beijing area. In recent years, many factories have moved to Hebei and Shandong provinces. Thus, the environmental policies during the National Day holiday will boost the PE market, but the positive impact will be limited.

The city Beijing and other areas around Beijing are the key areas of the environmental protection during the National Day holiday. Some enterprises in or around Beijing, Tianjin and Hebei have already reduced or stopped their output. Some small-sized factories without business licenses were shut down. Some of the PE downstream enterprises are located in Beijing, Tianjin and Hebei. The demand for the agricultural film industry will enter the peak season, and players will make replenishments before the National Day holiday, but under the tepid macroeconomic conditions, most players will hold bearish attitude toward the market. Besides, getting more impacts of the environmental policies during the National Day holiday in North China, the demand in the peak season will decrease.












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