Prominent Supply-Demand Contradiction in China PE Market

SCI99

2020-02-07

导读：Prominent Supply-Demand Contradiction in China PE Mark

Prominent Supply-Demand Contradiction in China PE Market after Spring Festival

Preface

Since February 3, more and more upstream PE enterprises have returned to work. However, as the downstream PE enterprises postponed returning to work, the PE market trading activity was tepid. At present, PE supply was under relatively high pressure, and when will the downstream enterprises return to work attracts the attention of market players.

Upstream inventory increased by 85% from that before holiday, and some enterprises reduced their operating rates.

Generally speaking, as the trading activity is stagnant during the Spring Festival holiday, it is normal to see an increase in the upstream inventory. However, affected by the extension of holiday, limited transportation, and deferred time for downstream enterprises returning to work, the upstream inventory accumulated greatly. Taking synthetic resin inventory as an example, it increased by 85% compared with that before the holiday, much higher than last years’ growth rate. According to SCI, the growth rates of synthetic resin inventory in 2018 and 2019 were 44% and 57% respectively.

Under such conditions, some petrochemical companies reduced their operating rates to ease the pressure. According to incomplete statistics, there were around 10 upstream enterprises whose operating rates reduced to 70%-80%, and about 4,010kt/a capacity was involved, with daily output decreasing by around 2,400mt-3,600mt.

The PE inventory at ports is increasing fast now. Due to relatively high prices of some imported resources, the downstream demand turned sluggish. Some resources arrived at ports at the end of January. After the holiday, the downstream demand and logistics will be not fully recovered, so the inventory at ports will increase fast.

The scheduled production proportion of HDPE blow molding was high, and attention should be paid to the variation of supply structure.

At present, there are few units under maintenance, Therein, the 100kt/a HDPE unit at PetroChina Lanzhou Petrochemical, 50kt/a LDPE unit at Sinopec Shanghai Petrochemical Company and 120kt/a LDPE unit at Zhongtian Hechuang Energy were under maintenance. There will be no newly added unit under maintenance in February and March.

The scheduled production proportion of blow molding was 12% of the total proportion of PE, hitting the highest point. As the demand for disinfection supplies kept increasing, the demand volume of packaging container used for disinfection liquid surged. Thus, the packaging container had the priority to be scheduled, produced and transported outside at the petrochemical companies. For example, PetroChina Dushanzi Petrochemical ramped up its production of small blow molding 5502, to ensure the need for the downstream enterprises. Besides, its HDPE unit was full loaded after producing the blow molding, and its daily output reached 1,050mt. As of late January, the company has delivered a total of 20kt blow molding.

The downstream enterprises will be back to work on February 10 intensively.

Agricultural film industry: At present, most producers shut their units down. Supported by the seasonality, the orders of mulching film producers increased greatly, with limited feedstock inventory. The feedstock inventory at greenhouse film producers was relatively sufficient, but restricted by the stagnant logistics, the finished resources inventory at producers increased. Most enterprises planned to be back to work on February 10. In general, the Spring Festival is ahead of the time for players using agricultural film. Thus, it will have little impact on the agricultural film industry.

Pipe industry: Most enterprises will return to work on February 10, and the finished pipe inventory at some enterprises was high. At present, the demand for pipe is in the slack season. The demand for pipe will increase gradually in the middle of March.

The transportation has not fully recovered, and the pressure on the PE market was prominent.

The transportation is an important factor affecting the turnover of PE supply. As of December 2019, domestic road freight volume was 41.6 billion mt, water freight volume was 7.47 billion mt, and rail freight volume was 4.32 billion mt. Road transportation accounted for 78%. The road transportation, taking up a relatively high proportion of the PE transportation, has been not fully recovered yet, which has increased the inventory pressure on upstream enterprises. In response to this condition, various enterprises took countermeasures actively in accordance with their own conditions, to seek for a moderate transit warehouse and to reduce their operating rates.

Attention should be paid to the oil prices as well. It will be hard for the demand to improve before March. At present, the supply-demand contradiction in the PE market is prominent, which has great impact on its market tendency. In general, the supply pressure on the PE market will be relatively high in Q1, 2020, and the PE market will in a downtrend.

......

Please click "Read more" for more information