PE market in weak consolidation

In 2021, LDPE market inches down as its price is too high in the previous stage, while LLDPE and HDPE market is in narrow range-bound.

However, recently, as LLDPE futures edges up, market price rebounds and market trading sentiment is healthy. However, the duration of this situation is expected to be short, the overall supply and demand side is still loose. In addition, as the Spring Festival approaches, the market may maintain in weak consolidation.

On the supply side:

At present, the operating rate of China domestic plants is relatively high, and they are few plants closed. Zhejiang Petroleum & Chemical has restarted its 300kt/year HDPE plant and PetroChina Dushanzi PC plans to restart its 100kt/year old HDPE plant. Most plants maintain normal production, except for Sinopec Maoming PC, whose operating rate is relatively low, hence the proportion of plants shutdown is only around 4%. Seeing forward, there is no maintenance plan for the time being, and most plans may shut for maintenance after the Spring Festival holiday.

In terms of new production capacity, Shaanxi Yanchang ChinaCoal II has produced steadily, in spite of the low operating rates. Ningbo Huatai Shengfu Polymeric Material tested run successfully while Haiguolongyou (Daqing Lianyi) are expected to test run after the Spring Festival holiday, and domestic supply may increase significantly.

However, at present, domestic petrochemical, crude oil and coal chemical inventory is relatively low, and slightly supports the market. In terms of petrochemical and crude oil inventory, on Jan 29, the inventory of Sinopec and PetroChina is around 460kt, which is the lowest pre-holiday inventory since 2017. However, what needs to be considered is that the low inventory is not the actual low inventory, many suppliers just transfer their inventory and the overall social inventory is still high.

In terms of coal chemical inventory, according to CCFGroup, the total plastic inventory (mainly PP and PE) in coal-chemical and other private plants is around 206.4kt on Jan 29, an increase of 1.43% from the previous period (Jan 22). The increase mainly lies in Shenhua Xinjiang, since there is basically no automobile transportation in Xinjiang, and the efficiency of trains is low, the source of goods is difficult to transfer. The inventory of other plants is basically reduced or flat.

On the demand side:

As the Spring Festival approaches, downstream plants closed gradually, and the operating rate is relatively low. In addition, in 2021, under the influence of the pandemic, nucleic acid testing are required for these people who wants to return home, so many workers have their Spring Festival holiday in advance and the downstream market is closed early. In addition, due to the pandemic, logistics and transportation have been greatly affected, and the cross-regional allocation of domestic sources has also been greatly affected. Most drivers and unloaders return home, and downstream procurement have reduced evidently.

Even if some demand rebounds supported by rising futures, the overall demand will continue to decline in the later stage. Therefore, from the above point of view, in the short-term, the capital injection cannot make the market continue to strengthen. In the late market, especially in the next two weeks, the supply and demand will be loose, and the market will remain in weak consolidation.