Newly-Added PE Capacity Brings Competition and Opportunity

China’s PE supply volume continued to increase. The import dependence gradually declined with many China’s new PE units putting into use. From the import data, decreases of China’s PE prices weakened the appeal of the Chinese users to imported sources. The import volume fluctuated narrowly around 10,000kt/a. According to data, more capacity will be put into use from 2017 to 2021.

According to the usual practice, the 2019-2021 year projects will be extended to varying degrees. Specific items are not discussed. But from the planned production projects side, most projects will be put into production from 2019-2021. It is predicted that overcapacity problem may occur in 2020-2021. Besides, competition in the domestic industry may be intensified, resulting in a weakening of the attractiveness of the Chinese market to foreign goods. However, China’s PE export window or open, giving more opportunities to China’s PE market.

In August, the PC price surged, with a monthly increase of over RMB 3,000/mt and a daily increase of RMB 1,000/mt. The PC price hovered at high for the past weeks. The market factors and supply-demand fundamentals all contributed to this uptrend.

Market Factors: The PC units started to take overhauls in June. The PC supply gradually became tight as the following months saw more overhauls. Meanwhile, the USD price in the futures market was also in an uptrend, which supported the PC price. Besides, in July, the State Council published the prohibition on the import of wastes. Later the import volume of PC decreased by 3.56% in the same month.

Supply-demand Fundamentals: The PC price hovered at high, due to the concentrated overhauls and tight supply. Some major PC producers plan to take overhauls in the coming months. The planned overhauls from September to November cover 16% global PC capacity. The China PMI was 51.7% in August, up by 0.3% from July, showing an uptrend.

The PC market sentiment is complex. The PC market has been moving sideways continuously for days. Despite the tight supply, most end users operated cautiously and purchased on a need-to basis. The PC market may continue moving sideways at high in Q4, 2017. PC market players should focus on the supply-demand fundamentals and the process of newly-added units.

In the manufacturing industry, prices of feedstock continued rising, while downstream demand was sluggish.

Prices of upstream materials headed up.

The official manufacturing PMI sub-index showed that the production index was 54.1% in August, up 0.6% MOM. That indicated that the production of manufacturing industry grew more rapidly than before. According to the manufacturing PMI sub-index released by Caixin website in August, manufacturers held most optimistic stances about the production in next 12 months.

That was related with high operating rates of blast furnace in August. Meanwhile, the daily coal consumption at six major power generation groups increased significantly.

Downstream demand sipped.

The inventory index of completed products decreased to 45.5% in August, down 0.6% MOM. Besides, the inventory of feedstock decreased to 48.3% in August, down 0.2% MOM, showing low inventory pressure at petrochemical companies.

Was the decline of inventory brought by the bearish stances of enterprises or the great demand and insufficient production?

Bian Quanshui, the security analyst from Sinolink Securities, considered that the decline of inventory was mainly because that enterprises reduced the inventory initiatively with bearish stances about the future demand. Besides, he thought that the supply would increase and downstream demand would continue decreasing, leading to a decline in prices of feedstock.