LLDPE Price: Y-O-Y Downtrend in Q1, Likely to Rise in H2
In H1, 2023, China’s LLDPE market price declined notably Y-O-Y, running within a narrower range. The international crude oil price gradually trended down, giving weakening support from the cost side. Meanwhile, the supply increased gradually while the demand remained tepid, so PE spot prices remained weak. In H2, the crude oil price is expected to fluctuate upwards, and the demand may improve on the continuous recovery of China’s economy. However, with China’s PE units resuming production, the increased supply may weigh down the price. SCI reckons that the LLDPE price will likely fluctuate downwards first and then rebound, but may drop again at the end of the year affected by the demand slack season and release of newly added capacity.
In H1, 2023, China’s LLDPE price fluctuated downwards, which was mostly aligned with the forecast in 2022-2023 China LLDPE Market Annual Report. From January to June 2023, China’s LLDPE price averaged RMB 8,194/mt, down 8.37% Y-O-Y. As of June 27, China’s LLDPE was RMB 7,970/mt, down 3.98% from early 2023.
In H1, 2023, the highest LLDPE price reached RMB 8,450/mt at the end of January. On the one hand, the crude oil price rebounded after a decline, giving certain support to the price. On the other hand, market participants held a strong bullish sentiment, pushing up the price. However, as the end demand was sluggish, and the demand was in a slack season in Q2, the LLDPE price fluctuated within a narrow range and then started to fall notably in May. As of May 31, the LLDPE price was RMB 7,900/mt, touching a yearly low.
1. Costs & Profits Showing Different Trends
In H1, 2023, the overall production cost of PE showed a downtrend from H1, 2022. Therein, the production cost of naphtha-based LLDPE averaged RMB 8,195/mt, down 15.08% Y-O-Y. That of coal-based LLDPE averaged RMB 8,165/mt, down 0.93% Y-O-Y, and that of methanol-based LLDPE averaged RMB 7,608/mt, down 8.64% Y-O-Y.
In H1, 2023, China’s LLDPE price increased first and then trended down, and production cost declined, while profits showed different trends. According to SCI, the profit from producing naphtha-based, coal-based and methanol-based LLDPE was RMB 10/mt, RMB -101/mt and RMB 597/mt. The profit from producing naphtha-based LLDPE improved while those from producing coal-based and methanol-based LLDPE trended down.
2. Supply: Both Chinese-Made and Imported PE Increased
In recent years, China’s LLDPE capacity growth increased first and then slowed down. From 2022 to 2021, LLDPE and FDPE units were put into production intensively amid rapid expansion of refining-chemical integration and steady growth of demand for agricultural film and packaging materials. In 2022, the commissioning of newly added LLDPE units was delayed, so now newly added capacity was seen. In H1, 2023, FDPE units at PetroChina Guangdong Petrochemical and Sinopec Hainan Refining and Chemical were put into production, so the LLDPE capacity increased by 6.39% Y-O-Y.
According to SCI, the total LLDPE output in H1, 2023 is estimated at 5,421.0kt, up 2.21% from H1, 2022. Therein, the output was the lowest in February affected by the Spring Festival and the fewest natural days in February, while it reached the highest point in March.
This was mainly because PetroChina Guangdong Petrochemical and Sinopec Hainan Refining and Chemical put their newly added PE units into production in H2 February, and the LLDPE products gradually came into the market in March. Meanwhile, there were more natural days in March, pushing up the output in March. In Q2, some enterprises shut down their units for maintenance amid the demand slack season, so the output declined from March.
In H1, 2023, China’s total LLDPE import volume is estimated at 2,396.8kt, up 12.57% from H1, 2022. The import volume was highest in February due to the delayed customs clearance and recovering domestic economy. In April, affected by the unit maintenance, the overall supply in Southeast Asia declined. Meanwhile, China’s newly added LLDPE capacity was put into production, so China’s PE market prices were at a low ebb. Some imported resources flowed to the regions with more arbitrage opportunities.
3. Demand: China’s Demand Weakened and Limited Support from Exports
In H1, 2023, the downstream operating rate increased first and then declined, showing a year-on-year downtrend. At first, affected by the Spring Festival, most downstream enterprises suspended production for the holiday. After the Lantern Festival, with downstream enterprises resuming production, operating rates of downstream industries recovered rapidly as orders piled up before the holiday amid a bullish sentiment. Later, new orders were limited and end users mainly arranged production based on orders and consumed the inventory of finished products with tepid buying appetites. With the demand weakening in Q2, the operating rates of downstream industries showed a downtrend.
In H1, 2023, China’s total LLDPE export volume was estimated at 89.7kt, up 1.36% Y-O-Y. The export volume increased notably from March to April, but the total amount was still low, exerting limited impacts on China’s PE market price. China mainly exported PE to Saudi Arabia, a certain country in the Middle East, Thailand, South Korea, etc. The increment was mainly caused by low PE prices in China’s domestic market, which granted China more export arbitrage opportunities. In addition, the exchange rate of USD kept rising, dampening the buying appetites of China’s traders.
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