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Insight | Time: Jul 27 2020 4:41PM
LLDPE downtrend pressure remains
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LLDPE price has gone through a frantic rise first, and then fluctuated lower continuously. After that, LLDPE futures and spot has returned to a more rational position. On July 27, the mainstream LLDPE futures contract closed at 7050yuan/mt, and the relevant spot price was basically near this level. The price of domestic goods is slightly higher, and the price of some imported goods of general quality is slightly lower, but the overall price spread is within a reasonable gap.

First of all, from the point of view of demand, although the current LLDPE price has retreated, for some industrial chain terminal enterprises, the price level is still high. Then, whether the end-users can afford the high-price raw materials is critical to the market trend. Take agricultural film as an example. At present, the coal-based LLDPE price in North China is still around 7,100yuan/mt. If most agricultural film plants purchase goods at current prices, it can only be on the edge of profit and loss as the agricultural film prices is hard to move higher. Previously, most agricultural film plants has stocked up when the price was low. However, in late July, with the operating rate of agricultural film plants increase gradually, the inventory consumption speed of agricultural film plants accelerates and they have to replenish stocks. At that time, the agricultural film plants may face challenges under the high-price raw materials. Once the agricultural film plants are still unable to accept the high-price raw materials, the downward pressure on the market will greatly increase. In terms of the acceptance of agricultural film plants, When the mainstream price of LLDPE drops to around 7000yuan/mt or even slightly lower, they will have better production profits.

Secondly, from the point of view of supply, in July as a whole, plants shut for maintenance have restarted gradually, including Sinopec Sabic Tianjin (SSTPC), Sinopec Tianjin Lianhe, Zhongtian Hechuang, Shenhua Ningxia Coal II and other plants. There is more room for the increase in market supply. From late July to August, ChinaCoal Shaanxi Yulin and Shaanxi Yanchang ChinaCoal may also restart. Moreover, some of the new plants are likely to be put into production, such as Baolai Petrochemical, which will increase the market supply. In addition to the increase in domestic goods, according to the general view of the market, the period from June to August is the peak period for the arrival of U.S. imports. In quite a long period of time, it is expected that the import of the medium- and low-end goods may increase evidently. Traders purchase these goods when the price overseas market moves lower, the cost is low and have large profit margin. Once start selling, the pressure on the market is expected to be more obvious.

Enterprises Production Capacity (kt/year) Note
Shenhua Ningxia Coal II HDPE/LLDPE 450 restarted
Sinopec Sabic Tianjin (SSTPC) LLDPE 300 restarted
Sinopec Tianjin Lianhe LLDPE 120 restarted
Zhongtian Hechuang HDPE/LLDPE 300 restarted
Shaanxi Yanchang ChinaCoal HDPE/LLDPE 300 may restart in early Aug
Ningxia Baofeng Energy HDPE/LLDPE 300 may restart in early Aug
ChinaCoal Shaanxi Yulin HDPE/LLDPE 300 may restart in early Aug

Therefore, from the point of view of supply and demand, the LLDPE above 7000yuan/mt is still facing greater pressure. In the late market, the price may continue to move closer to 7000yuan/mt, and the downward pressure remains. Once the end-plants still cannot accept the spot price of more than 7000yuan/mt, the LLDPE futures and spot may drop together.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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