PE lacks upward momentum due to supply and demand contradiction

In Aug, PE market adjusted slightly as a whole. Affected by the correction of crude oil prices at the cost side, PE price fell slightly in the middle of the month. Then, at the end of the month, oil prices stopped falling and rebounded, and the PE market rebounded slightly. However, due to the overall poor demand, combined with the influence of high temperature and power rationing policy in some areas, the price lacked upward momentum, and the ups and downs were not obvious.

In August, the operating rate of PE plants fell first and then rose, and the overall level was similar to that of the previous month, down about 0.76 percentage points from the average monthly operating rate of 78.67% in July to 77.91%. It is mainly due to the fact that many plants shut for maintenance this month, and then restarted. In addition, according to the current information, there are not many plants shut for maintenance at the beginning of Sep, and some plants are about to restart. At the same time, due to the overseas macro recession and intensified inflation, the pressure on foreign suppliers has increased, and there has been an influx of low-priced materials in the import market. Recently, the price of the PE CFR China market has continued to fall recently, the import window is expected to open and the supply of imports has a further increasing trend. Therefore, the pressure on the supply side in the future will continue to rise.

From the perspective of demand, the current downstream orders are mainly packaging films and some agricultural films, but the overall demand is still not good. The traditional peak season in Sep and Oct is coming soon, and the replenishment before the Mid-Autumn Festival and National Day holidays also helps the demand to recover to a certain extent. Therefore, the operating rate of plants may increase in the future, and downstream demand may be boosted with the advent of the peak season. However, as the epidemic situation and power rationing policy still exist, market demand still needs to be observed.

At present, the crude oil market is driven by both macro and fundamentals, although there is no substantial weakening at present, it is obvious that the tendency is relatively weak. Recently, it is heard that Iran nuclear talks may restart and supply may increase and OPEC+ production reduction declaration, oil prices have fluctuated. Moreover, oil prices fluctuating significantly on account of the supply side disruption caused by civil unrest in Iraq and Libya. However, as there is no substantial change in fundamentals and the overall oil price is still in range bound. The hawkish statement of the Federal Reserve and the implementation of the final plan for Iran's nuclear negotiations in the future may still have an impact on oil prices, resulting in a weak tendency, and support from the cost side provided for the PE market is relatively mediocre.

From the perspective of the supply side, the operating rate of the upstream is gradually picking up, and the plants shut for maintenance previously have been restarted gradually. Also, the 400kt/year HDPE plant of Satellite petrochemical II have been put into production, market supply has increased, the total plastic inventory (mainly PP and PE) in Sinopec and PetroChina have been reduced smoothly and the pressure on the supply side is increasing. In terms of demand, it is difficult to release downstream demand, and it is further constrained by factors such as the epidemic, high temperature, and power rationing. However, the arrival of the traditional peak demand season and the National Day holiday may boost demand. Therefore, in the short term, it is judged that the PE market may remain volatile in Sep, waiting for the demand side to pick.