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Lower production rates fail to sweep away oversupply concerns in China’s PE market

by Elif Sevde Yalçın - eyalcin@chemorbis.com
by Merve Sezgün - msezgun@chemorbis.com
  • 22/04/2024 (01:49)
PE players in China continued to report last week that overall supply kept surpassing demand despite notably lower production rates amid the ongoing turnaround season. The fragile buying sentiment surrounding the market was further dampened by sharp volatility in crude oil futures, coupled with a weekly loss in spot ethylene prices. Meanwhile, demand from the agricultural sector dwindled as the peak season approached its end.

Pace of destocking activity decelerates compared to previous weeks

Despite fewer import offers from the US and the Middle East, as well as significantly lower domestic production rates due to a series of shutdowns, PE supply has reportedly remained abundant in China.

Some players explained, “While maintenance works have alleviated supply pressure to some extent, inventory levels remain too high to be absorbed by current demand levels. Buyers either resist high offers or only make essential purchases at the lowest prices they can obtain.”

As of April 19, the combined polyolefin levels of the two major Chinese producers totaled 805,000 tons, showing a decrease of 30,000 tons compared to the previous week. Despite this decline, inventories remained high, especially when considering the ongoing turnaround season.

“The pace of destocking activities has slowed down compared to last week, since demand remains in the doldrums,” noted a PE trader.

Upstream volatility adds to buyers’ cautiousness

Between April 4 and 17, June Brent crude futures mainly traded within the $89-91/bbl range, marking the highest levels since mid-October 2023. However, on Wednesday, there was a 3% decline, pulling Brent futures down to $86-87/bbl, as concerns about demand resurfaced. Amid escalating and de-escalating tensions in the Middle East, Brent futures initially surged more than 4% on Friday, surpassing the $90 mark again. However, gains dwindled later in the day, bringing prices back to $87/bbl.

Such sharp fluctuations in oil futures, coupled with a weekly drop of $20/ton in spot ethylene prices on a CFR China basis, resulted in a faltering of prolonged support from the cost side. Consequently, most PE sellers were less firm on their offers compared to previous weeks, reflecting the heightened caution among buyers.

Agricultural season draws to a close

In the meantime, several PE players in China highlighted the impending end of the domestic agricultural season. “The market is weighed on by stagnating demand. As we approach the end of the agricultural film production season, demand from the agricultural sector has declined. In contrast, demand for food and beverage packaging from the consumer sector has remained steady,” noted a trader.

Import sellers fail to achieve further gains since early March

A combination of high costs, including those of feedstock and freight, and relatively alleviated supply pressure thanks to the turnaround season both at home and abroad, had given an upper hand to PE sellers between mid-December and March. During that time, China’s import PE markets experienced an upward trajectory, with film grade prices reaching multi-month highs around early March as per ChemOrbis Price Index data.

However, since then, PE sellers have struggled to achieve further price increases, and in some cases, they have faced difficulties in maintaining earlier gains. This has been driven by buyers’ strong resistance, attributed to a lack of significant recovery in key downstream sectors. As a result, the import LDPE film market has mostly remained stable over the past five weeks after a one-week correction from its one-year high. Import prices for LLDPE and HDPE film have also been stable to slightly lower during the same period.

Last week, import prices for all origins were assessed as stable compared to the previous week, with LDPE film priced at $1020-1100/ton and LLDPE film at $920-1010/ton, both on a CIF China, cash basis. HDPE film prices were stable to $10/ton lower at $940-1050/ton with the same terms.

China – PE price
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