Interpretation of the recent surge in the South China LDPE price

Recently, PE market in the South China market has shown some divergence, with LLDPE and HDPE prices showing weakness, while LDPE prices have been generally strengthening. Although the increase in LDPE prices is not significant, compared to other products and considering the previous month's volatile pattern, the current trend is relatively strong. So, why has there been a sudden increase in LDPE prices? Some market players hold the view that it can be attributed to the limited supply of Iranian LDPE 2119 and Iranian LDPE 2102TN00 supply in the previous period, which has supported the LDPE market. However, CCFGroup believes that there are two main reasons for the rise in LDPE prices.

The first reason is tight supply. Currently, it is observed that LDPE supply in the South China market is limited, and this is not solely due to Iranian goods. Imported supply is slightly affected by the delays in some shipments. For example, there have been blockage issues in the Panama Canal, resulting in slower transit speeds for some vessels. For more details, please refer to the insight China methanol imports affected by Panama Canal restrictions and overseas plant shutdowns. Additionally, typhoons appeared frequently in late July and early August, which had a impact in the South China Sea and East China Sea, causing some shipments to be delayed, thus resulting in lower-than-expected import supply.

Furthermore, domestic production has also decreased: The domestic LDPE in South China mainly comes from local sources such as Sinopec Maoming PC, and CSPC, as well as some cross-regional allocation from Zhejiang Petroleum & Chemical, Shenhua Group, and Sinopec. However, these plants have shut for maintenance in the previous period, as mentioned in the following figure.

In addition, the unique characteristics of Sinopec Yanshan PC LDPE 1C7A, is slightly differs from the aforementioned plants, and most of its plants are producing EVA. Only a small amount of Sinopec Qilu PC's supply being sold in the South China market.

Overall, from June to August, apart from old LDPE plant of Sinopec Maoming and LDPE plant (autoclave process) of Zhongtian Hechuang which had not shut for maintenance, the rest of the plants all shut for turnaround, which has resulted in a relatively tight supply of LDPE in the South China region.

The second reason is the support from the petrochemical and petroleum side is strong. Since August, the petrochemical and petroleum systems, particularly Sinopec, have repeatedly raised the ex-works prices of LDPE. Since early Aug the ex-works price have been adjusted up for several times, and the price rises by 50-150yuan/mt each time. These price hikes have provided significant support to the market, and traders offered higher accordingly.

The momentum for further price increases has weakened, and the trading atmosphere in the market is not as active as before. In the later period, this upward trend may have come to a short-term end. This is mainly due to the majority of domestic plants having already restarted, and the arrival of new shipments at ports. The subsequent supplies are expected to gradually recover and stabilize.