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Insight | Time: Aug 28 2019 3:03PM
PE market under heavier pressure in the future
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Domestic PE market has been weak recently and the overall market price remains low. There is no improvement in the market even though the slack season has passed and potential demand is improving. In terms of selling price, most kinds of products have dropped. Prices for LLDPE futures and spot have dropped below 7,500yuan/mt, LDPE at 8,000-8,500yuan/mt, HDPE below 8,000yuan/mt, injection around 7,500yuan/mt, film and blow molding below 8,000yuan/mt, and pipe below 8,500yuan/mt. The overall market is consolidating at low place and is still under downward pressure.

There are relatively high risks in the supply and demand side for domestic PE market. Supplies increase sharply including domestic goods and imported goods while demand growth is lackluster. The domestic demand growth rate is relatively low and international trade has been impacted by the trade war.

On the import side, domestic PE imports in the first half of 2019 has reached over 8 million tons, rising about 17% from a year earlier. However, current domestic market could not consume such a huge increment and it leads to this year’s PE market pattern. There are few optimistic views on the market, and most of them agree that the market is going to cause further weakness.

On the domestic supply side, new capacities that have and will come into production this year have reached up to a million tons. Jiutai Energy has started up its 300kt/year HDPE/LLDPE swing plant in the first half of 2019. Zhongan Lianhe has started up its 350kt/year HDPE/LLDPE swing plant in August and plans to produce 10kt LLDPE this month. Also, Ningxia Baofeng II and Zhejiang Petrochemical plan to come into production in the third and fourth quarters to expand domestic PE production capacity greatly. It can be said that pressure are gradually increasing from domestic suppliers. And the market is bound to slump after new capacity builds up to certain high.

Company Plant Capacity (000' mtpa) Production
Jiutai Energy HDPE/LLDPE 300 started up in May
Zhongan Lianhe HDPE/LLDPE 350 started up in August
Ningxia Baofeng II HDPE/LLDPE 300 plans to start up in August
Zhejiang Petrochemical HDPE/LLDPE 450 plans to start up in October
HDPE 300

Weak demand is also a big challenge. Take HDPE as an example, HDPE pipe and other grades had been in strong position under the stimulus of infrastructure and environmental protection policies in the past two years. But since 2019, there is insufficient demand for infrastructure and HDPE demand is weakening.

After the new standard Evaluation standard for green building introduced, indoor water supply system can only use copper pipe or stainless steel tube since August 1, 2019, and it is another hit on HDPE pipe. And this hit has gradually spread to other HDPE grades so far. It is because when HDPE pipe demand is poor, some petrochemical plants would change the production to other grades.

To sum up, the poor domestic PE market is influenced by the overgrowth of supply and insufficient growth in demand since 2019. The supply-demand structure of market is hard to improve in the rest of the third quarter and the fourth quarter of 2019. As more plants come into production and more imports arrival, the market is going to bottom down further. Players are suggested to control the inventory and other risks strictly in preparation for a difficult time.
[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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