China’s PE markets firm up, but impending capacity boom threatens sustainability

China’s PE markets followed a stable-to-firmer trend during the week ending March 7, supported by import supply constraints and a moderate demand recovery. Import prices for PE grades reached multi-month highs, while domestic LDPE prices recouped the previous week’s losses thanks to tighter availability. However, downward pressure remains from falling crude oil prices and impending large-scale capacity expansions, which could challenge sellers’ firm stance in the coming weeks.

Import prices climb to multi-month highs

Import suppliers largely issued rollovers to slight increases of $10/ton, citing higher offers for March shipments from a major Saudi Arabian producer. According to ChemOrbis data, the weekly average for import LDPE film has reached its highest levels in over three months, while LLDPE film level has climbed to a four-month peak. Lagging behind the two former grades, HDPE film price has hit a two-month high.

These increases reflected tightening supply conditions, with production turnarounds at Middle Eastern plants playing a significant role. A source at a South Korean producer noted, “Due to the ongoing shortage of supply, we raise offers for all main PE film grades, following the lead of a major Saudi Arabian producer. Regional availability remains tight due to Q1/Q2 maintenance plans in the Middle East.” He added, “Demand has improved to a certain degree.”

Notably, firmer prices for imported LLDPE film further reduced their gap with domestic offers. ChemOrbis Price Index suggests that local LLDPE film prices only traded around $34/ton above imports, marking the narrowest premium since mid-June 2022.

Tightening supply at home favors local LDPE

Inside the country, LDPE prices gained support from reduced supply, as some production units continued to favor EVA output over LDPE film. This production shift has constrained LDPE availability, prompting sellers to test the market with higher offers. As a result, domestic LDPE prices rose by CNY125-150/ton ($17-21/ton), reversing the previous week’s losses.

In contrast, HDPE and LLDPE remained in ample supply, preventing price hikes and keeping local offers competitive against imports. A local trader remarked, “We currently favor the domestic market as it offers better pricing than imports.”

Gradual revival in demand persists

The firming trend in China’s PE markets has been reinforced by better buying appetite, particularly from key downstream industries such as retail, food, and pharmaceuticals. A mild recovery in demand has been observed over the past couple of weeks, with factories returning to full operation and resuming replenishment activities amid rising order entry.

Despite this, players remain cautious, noting that only regular customers actively engage in transactions. Many buyers are still hesitant to place large-volume orders due to market uncertainties. This highlights a cautious approach to restocking, hindering stronger demand revival and tempering price increases.

A flexible packaging and woven bag manufacturer reported higher orders for his end products, saying, “The number of orders has improved compared to the previous weeks, as consumers are showing stronger willingness to make purchases.” He added, “However, they are regular customers, and their offtakes remain tied to basic needs.” A trader based in Xiamen echoed the same buying pattern for PE grades.

Falling crude, massive capacity expansions raise concerns

Meanwhile, the recent stable-to-firmer trend in the PE markets is under risk of certain bearish factors, including sharp declines in crude oil prices and massive capacity additions.

Brent crude oil futures experienced a weekly plunge to settle at $70.36/bbl as of March 7. ChemOrbis Price Wizard showed that the weekly average of Brent oil prices hit the lowest level since November 2021. Weak crude prices potentially lead to reduced Dalian futures and dampen the strong footing of ethylene feedstock costs, ultimately pressuring PE prices in the interim.

Additionally, concerns persist regarding China’s huge expansion in PE production capacity. With an estimated 2.43 million tons/year of new capacity expected by the end of March as per ChemOrbis Production News Pro, the potential for more intense oversupply looms large. If demand fails to grow in tandem with the capacity additions, the market could face a prolonged period of downward pressure.

A trader noted, “Downstream demand is growing, and producers are keen to push for higher prices. Nonetheless, full-scale additions of new capacities in March will boost supply, which will significantly weigh on PE pricing.”