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Insight | Time: Nov 27 2019 1:33PM
PE CFR China market remains weak for a long term
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PE CFR China market inched up in the early-to-mid September and then moved lower continuously since late September. Up to November, the market was still in weak consolidation. Market sentiment was lukewarm and trading atmosphere was not active. Prevailing offers for LLDPE (MFR: 2) were at $800-850/mt (duty-free cargoes at $900/mt), LDPE (MFR: 2, with anti-blocking agent) at $880-930/mt, HDPE film at $850-920/mt, HDPE raffia at $850-900/mt, HDPE blow-molding at $850-900/mt, and HDPE injection at $840-860/mt, load in Nov, CFR China main ports.

Near the end of this year, it was obviously that market had a down trend and the bearish market was hard to change for a long term. The reasons were as follows:

First of all, RMB market was hard to support the PE CFR China market.

RMB spot and futures market spiraled down since late Sep and then remained the downward trend. So were the PE CFR China market. According to the price spread trend between PE CFR China market and RMB market at present, once RMB market lost support, PE CFR China market could not remain firm. If domestic market dropped below 7,000yuan/mt, PE CFR China market would drop below $800/mt.

Second, internal and external supply increased as expected.

In fact, this year’s bearish market was mainly caused by the fact that increase in supply was much larger than the increase in demand. The increased internal supply was largely the capacity that would be put into production, while increased external supply was largely imported goods. There were also many new start-ups in foreign countries and the most obvious manifestations of this was that the volume of imports had greatly increased. According to the total amount of imports from January to September of 2019, the amount had actually approached the total amount of imports in 2018. What's more, imports in the fourth quarter would not be small, and tariffs would be repealed as Sino-US trade friction eased, and then imports from the U.S may return to higher levels.

Third, the shift in trade links.

In 2014 and 2015, PE CFR China market was largely financing market, second-third-fourth hand trade was very frequent while the proportion of actual direct trading and first-second hand trade was relatively low. However, both petrochemical plants and first-hand traders tended to engage in direct trading and most PE CFR China market sources had sold to petrochemical plants directly since 2016. In fact, sources traded in the market only accounted only played a very small part and there were fewer and fewer links between second-third-fourth hand trade. As a result, a lot of trades had been privatized, and offers on the market had been significantly reduced.

Finally, the upstream and down stream’s bearish sentiment had affected the market.

Since PE CFR China market appeared poor throughout the year, downstream and upstream market sentiment was bearish. Some traders had went bottom fishing repeatedly for hoping that market price would rise. However, the increase period was too short and the market price only went up slightly. The late market would not be optimistic under the influence of bearish sentiment.

To sum up, it’s actually very difficult for the PE CFR China market to move up, and the prosperous market could only be maintained for a short time. Seeing from the current supply and demand side, macro trend and market sentiment, the market was seen to be poor. Therefore, PE CFR China market may maintain weak for a relatively long 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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