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Insight | Time: Sep 3 2020 4:10PM
The risk of LDPE in short supply accumulates
 
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Recently, domestic PE market moves higher as a whole. In the case of the gradual release of demand in the peak season and the continuous replenishment of the downstream end-plants, petrochemical inventories have fallen sharply and the support of the market has become more and more powerful. Among them, LDPE is the strongest. Under the condition of continuous rise, the transaction price of coal chemical industry 2426H in East China has risen to more than 9,800yuan/mt, which is about 2,500yuan/mt higher than that of coal chemical industry 7042 in the same region. The price spread between LDPE and LLDPE price has expanded to a level that have not seen in several years.



The rise of LDPE is the result of the joint action of both supply and demand side.

From the perspective of supply, first of all, in terms of domestic products, the start-up peak season of domestic LDPE plants was in 2016-2017, and it has maintained a stable state since 2017. No new LDPE plant has been put into production in the past three years. The increase in supply has already been covered by the increase in demand, and supply growth is even far less than the growth in demand during this period. Under normal circumstances, LDPE is matched with LLDPE in a certain proportion to produce terminal products. Since 2018, domestic LLDPE-related plants have been put into production. For example, Jiutai Energy, Zhongan Lianhe, CSPC II, Zhejiang Petroleum & Chemical Co.,Ltd., Shenhua Ningxia Coal II and the recent Liaoning Bora Enterprise Group (Bora), a total of more than 2 million tons of plant capacity. As for LDPE, there is not a set of plant put into production in China in these three years, and the shortage of supply can be understood.

Company Facility Capacity (KTA) Production time
Shenhua Yulin LDPE 300 2016.1
Shenhua Xinjiang LDPE 300 2016.1
Zhongtian Hechuang LDPE 370 2017.4 2017.8
Jiangsu Sailboat LDPE/EVA 300 2017.4


Secondly, in terms of imported LDPE, from January to July 2020, China imported about 1.864 million tons of LDPE, compared with about 1.976 million tons in the same period in 2019. Compared with the same period in 2019, the import volume of LDPE in the first seven months of 2020 has decreased by more than 100kt. Especially since June, several ships of Iranian have difficulty in landing, which has also aggravated the shortage of LDPE in the Chinese market, giving a great boost to the strong LDPE market.

From the demand side, the growth of the entire PE demand in 2020 is more than expected, especially the global outbreak of the coronavirus epidemic, which has increases the demand for non-woven protective clothing and packaging products for virus isolation. The amount of LDPE used in non-woven protective equipment and packaging products is extremely large. Basically, LDPE is one of the most important raw materials for all kinds of non-woven protective clothing. This part of the demand grows sharply, which has brought a huge increase in demand in the raw material market.

To sum up, with the reduction of supply in the domestic LDPE market in 2020, the demand has grown to a record high, bringing a strong rising market. In the late market, the situation that demand exceeds supply is still difficult to change, and LDPE market is still expected to maintain firm. Of course, with the rise of LDPE prices, downstream industries are also suffering damage. Once the price rises to the level where most industries are unprofitable or even loss, LDPE may be replaced by other raw materials. So in the process of rapidly rising, its risks have begun to accumulate.
[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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