Bearish Factors Dragged PE Price to a 20-Year Low

SCI99

2020-04-02

Bearish Factors Dragged PE Price to a 20-Year Low

In 2020, the prices of PE in China kept trending down. After the Spring Festival holiday, influenced by the public health issue, downstream users had to postpone their restart of operation, and the logistics industry was restricted. Therefore, the PE market suffered from serious oversupply, suppressing the PE prices. From H2 February, though the revival of operating rates at downstream industries supported the PE market, the public health issue began to break out in foreign countries, and at the same time, Saudi Arabia started a crude oil price war, resulting in continuous slumps in international crude oil prices. As a consequence, participants in PE market adopted bearish attitude, and the prices of PE in China kept dropping. Up to March 27, the LLDPE 2042 prices at producers in East China had dropped to RMB 6,000/mt, and the prices of a few grades of PE even declined to around RMB 5,800/mt. The PE prices were close to the lowest level since 2002.

In February, China’s PMI (manufacturing industry) dropped to 35.7%, down 14.3% M-O-M, and the number was even lower from 2008 when the financial crisis broke out. The PE downstream users in China were located all around China, and therein, the number middle and small-scale users, which were more vulnerable to risks, were huge. Accordingly, the sluggish economy caused by the public health issue significantly influenced the overall PE demand in China.

As for the operating rates of downstream industries, in Q1, 2020, the overall operating rate of downstream industries was lower from recent years. In March, the public health issue in China was significantly relieved, and the operating rates at many downstream users had resumed to normal levels. However, the aggravation of global public health issue made the foreign demand for PE resources drop dramatically. As a consequence, the operating rates at PE exporters were restricted to some extent. Moreover, the revival of some industries such as hotels and tourism is still very slow at present. As a product closely related to consumption, the revival of PE industry will be determined by the revival of end consumption. On the whole, SCI reckons that though the current PE prices are at extremely low levels, influenced by the oversupply in the PE market, the future PE prices are unlikely to increase significantly in a short period.

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