Imported PE market remains weak amid poor fundamentals

Since early October, PE market has been relatively strong supported by macro factors. Subsequently, the market fluctuates lower, and CFR China market is no exception. The overall market maintains a weak operating trend without excessive fluctuations. Recently, prevailing offers for LLDPE (MFR: 2) were at $960-980/mt, LDPE (MFR: 2, with anti-blocking agent) offers at $1180-1200/mt, HDPE film at around $920-960/mt, and HDPE blow-molding at around $910-930/mt, load in Dec-Jan, CFR China main ports.

From the current market perspective, the supply and demand side of USD-denominated products remains continuously weak, and the downtrend may still continue.

First, on the supply side:

The most obvious aspect on the supply side is the significant increase in domestic production capacity. Currently, the 500kt/year HDPE plant and 300kt/year HDPE/LLDPE plant of Sinopec/Ineos Tianjin has been commenced in Nov. It is estimated that the average monthly increase is around 70,000 tons. Subsequently, there are still plants such as Baofeng, Wanhua, Yulong, etc. Even though there is a probability of delay for some plants, they can basically be implemented before the first quarter of 2025. The subsequent domestic supply cannot be underestimated.

The increase in domestic production will, to a certain extent, squeeze the supply of imported materials. However, currently, the overall import volume is still relatively sufficient. From January to October 2024, China's total PE imports were 11.4013 million tons, an increase of 3.15% compared to the same period last year.

As the end of the year approaches, the year-end destocking activities of overseas petrochemical plants will also gradually start. Although the monthly import volume from July to September in the second half of the year decreased month by month, the import volume in October rebounded slightly. The import volume from November to December is still expected to be relatively considerable.

Second, on the downstream demand side:

Since the beginning of November, the overall downstream demand has weakened. For example, the demand for agricultural film has gradually returned to the off-season. With weak orders and a slight decline in operating rates compared to the previous period, the procurement demand for raw materials has also weakened. In addition, the demand for packaging film and other products has gradually decreased compared to the previous period. The overall demand has gradually entered the slack season.

Furthermore, the current RMB exchange rate still has a slight depreciation.

The RMB exchange rate continues to depreciate. The current central parity rate has reached around 7.2. The downstream' s willingness to purchase USD-denominated products has significantly declined, and they are more inclined to purchase yuan-denominated materials and get the tax refunded, further suppressing the trading of US dollar sources. In this situation, in order to maintain a reasonable price spread and transaction volume, some traders will slightly adjust down their offers, and the impact on the CFR China market will also gradually become prominent.

In general, currently, supply is on the high side, demand is weakening, and the fundamentals continue to perform poorly. Moreover, with RMB exchange rate depreciation and the fact that the macro level does not provide strong support, the CFR China market is initially expected to remain weak.