China LLDPE Price to Move Sideways in Q2
In Q1, China’s LLDPE price showed a W-shaped trend first and then moved sideways affected by newly added capacity and slow downstream demand growth. In Q2, the newly added capacity will continue to be released and the production peak season of mulch film will gradually come to an end, so the LLDPE price may continue to move sideways.
In Q1, China’s LLDPE price showed a W-shaped trend first and then moved sideways, with an average price of RMB 8,268/mt, down 1.54% from Q4, 2022 and 7.87% from Q1, 2022. The main reasons are explained as follows. Around the Spring Festival, most market participants held a bullish sentiment on the end demand recovery, and some traders replenished their stocks moderately. However, the demand improved limitedly after the holiday with insufficient new orders. Later, the traditional production peak season of mulch film started in March, improving the market sentiment, while the demand underperformed compared with that in 2022.
As for the newly added capacity, PetroChina Guangdong Petrochemical and Sinopec Hainan Refining and Chemical put the newly added PE unit in H2 of February, involving 1,100kt/a LLDPE capacity. In early March, some products from new units came into the market gradually, and there were more natural days in March, so the overall LLDPE output hit a yearly high in March. Although it takes some time for the newly added unit to run normally, market participants should pay attention to the impacts of newly added capacity on China’s domestic supply.
In Q1, China’s total LLDPE output was 2,775.1kt, down 2.24% from Q1, 2022 while up 1.37% from Q4, 2022.
In Q1, China’s total LLDPE import volume is estimated at 1,264.2kt, up 8.77% from Q1, 2022 while down 2.42% from Q4, 2022. Affected by unit maintenance, the overall supply in Southeast Asia declined. Meanwhile, China’s PE price was at a low level globally, so more resources flowed to other regions with more arbitrage opportunities. Meanwhile, the newly added LLDPE capacity in China dampened the importing interest, dragging down the LLDPE import volume in Q1, 2023.
In Q1, the downstream operating rate declined first and then increased, while it was lower than that in Q1, 2022. Most downstream enterprises suspended production for the Spring Festival holiday and resumed production after the Lantern Festival. In addition, most market participants held a bullish sentiment toward the market, and orders piled up before the holiday, so downstream enterprises resumed production quickly. However, with limited new orders, they mainly arranged production based on orders and consumed the inventory of finished products.
In Q1, 2023, China’s PE inventory stayed at a medium level. According to SCI, as of the end of March, the inventory at sample producers declined by 15.3% Y-O-Y. The newly added units in Q1 increased the supply pressure, and downstream demand recovery was under expectation. Meanwhile, the release of newly added capacity still needs some time and most producers cut their prices to reduce the inventory. In addition, the demand improved notably in the traditional demand peak season in March and April. For example, the demand for mulch film improved significantly and new orders increased, pushing up the operating rate greatly. In Q2, the demand will gradually weaken, and the sales pressure will increase. Meanwhile, the output loss due to unit maintenance may decline, so the supply of Chinese-made resources will inch up together with the release of newly added capacity. Therefore, it’s estimated that the inventory at producers is expected to move up.
As for the cost, taking the cost of naphtha-based LLDPE as an example, it showed an inverted N-shaped trend in Q1, averaging RMB 8,258/mt, down RMB 738/mt, mainly affected by the international crude oil prices.
In Q2, no newly added LLDPE capacity will be seen. Although the newly added units at PetroChina Guangdong Petrochemical and Sinopec Hainan Refining and Chemical are expected to run normally in Q2, Shenhua Ningxia Coal Industry Group and a producer in East China will take overhauls, which will give some relief to the overall LLDPE supply. As for the demand, the demand for mulch film may improve slowly, and the production peak season may come to an end. The demand from the daily packaging industry will likely improve amid the macroeconomy recovery. However, with the feedstock price fluctuating, downstream users will continue to purchase on a need-to basis, which will give limited support to the spot price. On the whole, China’s LLDPE price may move sideways in Q2, and attention should be paid to unit maintenance.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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