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Insight | Time: Nov 20 2019 10:06AM
7000yuan/mt—a psychological line of LLDPE Jan futures
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Domestic LLDPE market remains poor even in Double Eleven shopping days. The LLDPE Jan futures contract have dropped to 7010yuan/mt on November 14, and this is the second time of the Jan futures contract drops to around 7000yuan/mt this year. Finally, the price have not dropped below 7000yuan/mt, then market price rebounds higher slightly and a large number of low-price spot cargoes appear in the market. Downstream and traders stock up more goods and market trading have improved.

However, the LLDPE market have not improved yet. LLDPE futures price may hover around 7000yuan/mt once again in the near future. For the moment, it’s uncertain that whether LLDPE futures price will drop below 7,000yuan/mt. However, it’s surely that the situation could happen one day and there's a higher probability of LLDPE futures price drop below 7,000yuan/mt.

First of all, judging from the impact of the new start-ups, domestic chemical products market is hard to improve for a period of time in the future. Upstream continues to expand capacity and put new plants into production while downstream demand remains bearish. Thus the development prospects of whole market is poor. Under the impact of continuous production of new equipment, LLDPE market price moves lower and is closer to the Ex-price of petrochemical plants. Zhejiang Petroleum & Chemical Co., Ltd. will start up its HDPE/LLDPE plants in the fourth quarter of this year and Hengli Petrochemical I will start up its HDPE plants in the first quarter of next year. In addition, refineries in North America are also expanding, all of these plants will depress the market. As is known to us all, quantitative change will inevitably lead to qualitative change. With more and more plants putting into production, any plants may become the last straw to overwhelm elephants. As a result, it will not be long before the LLDPE market price declines below 7000yuan/mt. It may occur in the near future, or in the fourth quarter of this year, or some stage in the first half of 2020. In short, the bearish trend in the market will remain unchanged for the moment.

Company Plant Capacity (kt/year) Production
Jiutai Energy HDPE/LLDPE 300 commenced in May,2019
Zhongan Lianhe HDPE/LLDPE 350 commenced in August, 2019
Baofeng II HDPE 300 commenced in end-Sep
Hengli Petrochemical I HDPE 400 may be commenced in 2020
Zhejiang Petroleum & Chemical Co., Ltd. HDPE/LLDPE 450 may be commenced in December, 2019
HDPE 300 may be commenced in December, 2019

Second, seeing from the consumption of downstream demand, the decline of current growth rates accelerates. And according to the National Bureau of Statistics, total retail sales of consumer goods are 3.8104 trillion yuan, up 7.2% in nominal terms from a year earlier while growth rate down 0.6% month-on-month in October, 2019. Or the total sales could be said up 4.9% year-on-year but growth rate down 0.9% month-on-month after deducting price factors in real term. In terms of LLDPE position in consumption, most of them appear as packaging attachments of various products. Thus the decline in the total retail sales of consumer goods means decline in the growth rate of LLDPE demand in the future. This is an irreversible trend and it’s closely related to the macro economy.

On the whole, LLDPE market is currently facing the unfavorable situation of growing new start-ups and slowing demand growth. It is expected that the market will remain the down trend and fall into bear territory. 7000yuan/mt is a key price of LLDPE market, and also a psychological support price of many people, but it’s definitely not an efficient bottom price. Perhaps LLDPE price will fall below 7000yuan/mt in the future, and this time is not far from us.
[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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