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How will PE Market Go in the Short Run?

How will PE Market Go in the Short Run? SCI99
2020-02-20
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How will PE Market Go in the Short Run?
Market Review
In January, China’s PE market fluctuated downwards. After New Year’s Day holiday, the market trading activity was tepid, which restricted the deals, so some players reduced their sales prices. As the downstream producers shut their units down due to the Spring Festival holiday, the buying appetite in the PE market was tepid, leading to sparse deals and decreasing spot price. In January, the average monthly price of LLDPE was RMB 7,509/mt, down 0.33% M-O-M, down 18.4% Y-O-Y. The average monthly price of LDPE was RMB 8,111/mt, down 0.62% M-O-M, down 11.24% Y-O-Y. Most prices of HDPE grades kept decreasing, with the price change fluctuating within RMB 50-300/mt.  
PE Inventory
As of February 14, China’s PE inventory increased by 12.07% from that on February 7. Hereinto, the PE inventory at upstream producers increased by 19.78% W-O-W, and the PE inventory at ports increased by 2.25% W-O-W, and the PE inventory at traders increased by 0.62%.
PE Supply and Demand


Supply: SCI estimates that the output loss next week will be about 9.9kt, up 0.3kt W-O-W. Hereinto, LLDPE takes up 1.1kt, and LDPE takes up 8.8kt. The import volume this week was at a medium level. The mainstream PE inventory at ports will accumulate fast.
Demand: Agricultural film producers will restart their units, and the demand for mulching film will keep increasing. It is expected that the producers will purchase more feedstock, which might support the feedstock market. 
The downstream operating rates inched up. The mainstream operating rates in downstream industries were 5%-15%. Although units at most downstream industries restarted, the operating rates were at a low level. Besides, the transportation and logistics were limited, so the market trading atmosphere were tepid, and it was hard for the demand to improve in the short run.
PE Price
In January, supported by the increasing exchange rate of RMB against USD and the rising PE spot prices in China in H1 January, the international PE market increased. Meanwhile, the sales pressure on suppliers was low, and the offers were firm. At the end of January, China’s PE market prices decreased, but the most international traders stopped selling.
LLDPE: The offers for LLDPE resources from Saudi Arabian and Kuwaiti suppliers were $870-880/mt in the middle of January, and then they stopped selling. 
HDPE raffia: The offer for January-shipping raffia resources from one certain South Korean supplier was $875-880/mt, with sparse deals. The offer from one certain Indian supplier was $840-850/mt. 
HDPE film: The offer for HDPE film resources from one certain Saudi Arabian supplier was $900/mt, adding $10/mt to sell in China’s market, with sparse deals.
HDPE injection: There were few HDPE injection resources, and one Saudi Arabian trader offered at $790/mt to sell, and the offer jumped to $830/mt in China’s market.
LDPE: In H1 January, the offers for LDPE resources from Saudi Arabian suppliers were $930-940/mt. The offers from Indian traders were $910-920/mt, adding $30/mt to sell in China’s market, with tepid market deals. 
SCI believes that China’s PE spot market will be influenced by the markets’ panic stances, and the inventory will still be high due to the stagnant logistics. The operating rates at downstream producers will be low, and attention should be paid to the inventory at ports and petrochemical companies. 
Market Forecast  
The crude oil prices will be at a low level in the short run, which will support the downstream products from the cost side. As of February 7, the upstream PE inventory at petrochemical companies increased by 63% Y-O-Y, and the inventory at ports kept increasing, so the supply pressure on the PE market mounted up. Only few downstream producers returned to work, failing to support the market from the demand side. Besides, the logistics and transportation are still limited, so the contradiction between supply and demand is more prominent. SCI estimates that the PE market prices will continue the downtrend, and the mainstream LLDPE prices are estimated to be RMB 6,500-6,800/mt. 
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