PE sellers attempt price hikes after 4 months in China: Is it the start of a recovery or a dead-cat bounce?

Import PE markets in China were on a downward trend since early March, dragged down to around three-year lows up until last week. As sellers looked for signs of market bottom over the past week, spot prices have moved slightly upwards this week with price hike attempts seen for the first time since late Q1, although big questions lurk behind this very recent rebound.

After having suffered from weaker-than-expected demand recovery in the post-Covid era and growing supply pressure at home, caused by successive capacity additions, sellers have renewed their confidence recently. They mainly point to the cautious improvement of the sentiment in the domestic markets, which kicked off only last week, with support from the reduced inventories of local producers following constant run rate cuts and plant shutdowns.
Beijing’s latest steps to shore up a shaky post-pandemic recovery through some stimulus in macroeconomic policies have also stirred some hopes that the bottom has been reached.

Rally gains momentum in local PE markets following interest rate cuts

After witnessing small increases last week amid an improving sentiment, domestic PE prices have witnessed relatively larger increases this week.

A trader commented, “Given the background of weak growth and higher inflation, China’s PBOC has implemented a series of interest rate cuts to help stimulate domestic consumption demand. These measures have aided in raising domestic consumption, aided the sentiment and lifted domestic polyolefin prices. This also has lent support to import prices. There will likely be more monetary and fiscal policy measures to revive the economy.”

The two major producers’ combined polyolefin inventories were standing at 640,000 tons by the end of last week, notably down from early May, when they neared 900,000 tons.

The initial price levels reported this week were standing at CNY7,680-8,600/ton ($951-1065/ton without VAT) for LDPE film, at CNY7700-8,030/ton ($954-995/ton without VAT) for LLDPE film, and CNY7,950-8,460/ton ($985-1045/ton without VAT) for HDPE film, on similar terms. These levels have been CNY400/ton ($55/ton) higher for LDPE from last week while up to CNY150/ton ($21/ton) increases have been recorded for HDPE and LLDPE film.

Sellers from overseas markets take a chance although import demand is still not solid

Middle Eastern and South Korean sellers have so far been firm on their offers to China this week, although they are aware that demand for import cargoes is yet to be solid.

During the more than three-month downward trajectory, LDPE was the grade that suffered the most by losing its traditional premium over HDPE and seeing below the $900 CIF mark.

On the recent recovery track, spot prices for the overall LDPE range have been stable to $40/ton higher from last week to stand at $880-970/ton CIF China, cash basis. Within the range, Middle Eastern origin offers are standing stable to $10/ton higher at $880-930/ton on similar terms.

As for HDPE and LLDPE film, the overall ranges for import film prices have stood at $910-990/ton and $880-970/ton CIF China, respectively, indicating weekly gains of up to $30-50/ton. Within the ranges, Middle Eastern origin offers are standing stable to $20/ton higher at $910-970/ton for HDPE film and $880-920/ton for LLDPE film on similar terms.

Here it is important to underline that last week’s low ends were mostly formed by offers or deal levels for competitive US-origin offers, which are yet to be heard or captured this week. Therefore, the weekly gains for the overall ranges are more visible when compared to Middle East origin offers.

The critical question remains: Will it be sustained?

Chinese players are now questioning whether this recent upturn in PE prices will be sustained considering that the demand side is yet to provide full support to it, not to mention the more-than 3 million-ton PE capacity addition planned for this year. On top of that, economic headwinds remain along with the lingering downtrend in olefin prices.