A Precarious Balance After Tariff-Related PE Market Gains Fade
Introduction: In May 2025, China’s PE market was torn between policy tailwinds and weak supply-demand fundamentals. A provisional U.S.-China tariff relief agreement on May 12 briefly ignited market optimism, driving price rebounds in all PE varieties—LLDPE, LDPE, and HDPE. However, the policy-driven rally lasted only a week before supply-demand realities resurfaced, curbing price gains. By May 19, the PE market prices had retreated, with LLDPE prices in North China decreasing by RMB 100/mt from weekly highs, while East and South China markets saw price corrections of RMB 10-50/mt.
Weekly Review: Tariff Truce Fuels Rally, Demand Weakness Caps Gains?
From May 9 to May 15, the PE market price showed an upward trend amid fluctuations on tariff relief optimism. WTI crude oil price leapt from $59.24/bbl to $63.67/bbl on May 12, while a three white soldiers candlestick pattern in LLDPE futures further bolstered sentiment. Traders withheld stocks, pushing the average price of spot LLDPE in East China up from RMB 7,440/mt to RMB 7,600/mt. LDPE outperformed with its prices rising RMB 400/mt to RMB 9,650/mt in East China—its sharpest weekly gain this year—amid geopolitical supply risks.
The rally, however, lacked staying power. Downstream producers restocked by small orders at the initial phase of price increase but balked as LLDPE prices approached RMB 7,900/mt. The operating rate of the agricultural film industry slid to 20%, down 2 percentage points WoW, while producers of packaging film and blow molding goods, squeezed by export declines, stuck to feedstock procurement based on rigid demand. The trading volume dwindled after early-week spikes, and supply pressures lingered. The PE output loss due to maintenance in China rose by 35kt WoW to 126kt. However, ExxonMobil’s new 730kt/a LLDPE unit in Huizhou ran at full load, and China’s ports saw intensive arrival of low-priced resources from the Middle East, so the spot supply was still sufficient. PE resources from the U.S. remained uncompetitive after the tariff truce, and Middle Eastern HDPE film prices stayed above China’s domestic levels, diminishing the import arbitrage opportunities for traders.
Market Shift: Supply-Demand Fundamentals Reassert Dominance?
The market dynamics after May 16 exposed the fragility of the policy-driven price rally. By May 19, LLDPE spot prices in North China slid to RMB 7,350-7,550/mt, down 2.35% from the high point earlier in the same week. Market offers for LDPE in East China remained at RMB 9,300-9,650/mt, but it was traded with RMB 50-100/mt discounts in actual transactions. Futures triggered the reversal: The LLDPE dominant contract price dropped from RMB 7,640/mt on May 13 to RMB 7,420/mt on May 19, exacerbating the sales pressure on the spot market.
The deepening imbalance between supply and demand was the main reason behind this price correction. In terms of supply, the capacity utilization rate of China’s PE industry hovered at 82% despite high maintenance-related output loss. What’s more, the expected North American capacity additions in Q3 loomed over Asia’s supply outlook. Meanwhile, demand faced dual pressures. Over 60% of agricultural film producers stopped production amid weak demand for mulch films, and export orders in the packaging industry, eroded by Southeast Asian competition, were expected to drag PE consumption down by 8% MoM in May. Downstream buyers turned cautious about feedstock procurement, sapping market liquidity.
Cost-side support wavered. Though WTI crude oil prices were in the range of $59-63/bbl, weak demand blocked cost pass-through. Meanwhile, swelling capacity in China muted oil price impacts on PE.
Outlook: Structural Divergence Within a Precarious Balance?
In the short term, the PE market is anticipated to maintain a weak equilibrium bounded by supply ceilings and cost floors, but product differentiation may intensify. China’s LLDPE price is expected to be capped at RMB 7,450-7,900/mt amid domestic oversupply. The LDPE price may witness brief spikes, due to import uncertainties tied to geopolitical risks, but resistance from downstream buyers may mount when prices rise above RMB 9,650/mt. The HDPE price is envisaged to remain resilient due to Middle Eastern port disruptions and overseas maintenance, reducing May arrivals, though raffia grades show early signals of inventory build-up.
Risks loom: 1) Potential U.S. tariff resumptions after the 90-day truce may hit China’s LLDPE imports with a 21% import dependence degree. 2) In Q3, North American capacity additions may pressure Asian markets via aggressive pricing, which may exert pressure on China’s PE market price. 3) Macro weakness persists. The CPI decreased by 0.1% YoY in April, and the decrement in PPI increased to 2.7%, signaling frail end-user demand.
Strategies for Market Players?
For market participants, strategies must balance defense and agility. Producers should optimize maintenance schedules to manage supply; traders need to hedge against forwardation risks in forward contracts; downstream players could leverage basis pricing tools to lock in costs. As policy and supply-demand fundamentals vie for dominance, the precarious balance in the PE market may hold until early Q3, when seasonal demand recovery and new capacity commissioning may reshape the stalemate.
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