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China’s PE demand wavers amid controls on environmental pollution and electricity use

by Pınar Polat -
  • 06/01/2021 (04:01)
In China, import PE prices retreated from multi-year highs in mid-December 2020 and have tracked a stable to softer trend since then. Weakening demand amid environmental inspections to prevent pollution and a lack of electricity has continued to pull the sentiment down, leading to further corrections in spot prices.

The continued downward pressure from local prices amid ample supply for HDPE and LLDPE has been cited as another bearish factor.

“Environmental inspections are getting stricter while the limitation of electricity use particularly in the eastern part of China is affecting downstream plants. Weak demand and rising inventories are pushing major producers to reduce their offers. PE prices have started the new year on a weak note,” a few traders opined.

China - Import LDPE LLDPE HDPE Film Prices

Offers for Mid-Eastern origin prices are currently assessed flat to softer from last week at $1350-1390/ton for LDPE film, $990-1020/ton for LLDPE film, and $980-1000/ton for HDPE film, on CIF China, cash basis. Prices are prone to further softening throughout the week, players concur.

Overseas sellers’ firm stance falters on buyers’ preference of local materials

Although overseas PE sellers are still not under severe sales pressure, they have been willing to give discounts to Chinese buyers amid the downtrend in the country’s local markets.

The number of done deals for import PE cargoes is limited as buyers prefer to source from the local markets where they can find more attractive levels.

Supply ample for HDPE, LLDPE grades

While supply for LDPE has remained limited, HDPE and LLDPE grades have faced ample availability.

“HDPE is under huge supply pressure considering the new capacities coming on stream as well as the continuing arrival of import cargoes. We think that HDPE and LLDPE grades may witness more visible decreases than LDPE over the near term,” a few traders said.

Meanwhile, traders reported that China’s two major producers’ combined polyolefin inventory levels were standing at 725,000 tons on Monday, January 4. This level indicated a more than 100,000 tons increase when compared to the latest levels in 2020.

Demand inhibited by pollution control, restricted electricity use

Cold weather conditions caused several Chinese cities to impose restrictions on electricity use. This was attributed to a surge in power demand in the midst of a shortage of coal.

For this reason, some downstream plants were shut or their run rates were cut, according to market sources.

Since December 2020, demand has been weighed on by limitations of electricity use and environmental inspections targeting downstream plants. The off-season for agriculture has also hindered interest.

Meanwhile, China’s ban on non-recyclable straws and bags used in supermarkets and shopping malls started in major cities by the end of 2020 while it is expected to be extended in all cities and towns by 2022. This gradual banning concerns HDPE bag suppliers. Its possible impact on the demand side is to be observed as buyers may avoid large purchases amid cautiousness.

Demand is expected to slow further down in the upcoming weeks as downstream players will leave their desks for the Chinese New Year holiday.

Chinese New Year lull may last longer this year

The Chinese New Year holiday will officially be stretching from February 12 to February 17 in 2021.

However, players mostly believe that the holiday season may last longer this year as manufacturers are expected to extend the duration of their factory shutdowns to be less affected by the environmental inspections and a lack of electricity.
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