OUTLOOK ’18: China’s PE import prices to weaken in Q1

SINGAPORE (ICIS)–China’s import prices for polyethylene (PE) are expected to turn soft in the first quarter of 2018 as a result of increased supply, industry sources said.

PE imports increased sharply from August and are expected to continue at a high level through the first quarter of 2018 due to firm prices in China from July, 2017.

China imported 9.63m tonnes from January to October in 2017, up by 20.6% compared with last year, according to China customs.

For the week ending 1 December, imported high density polyethylene (HDPE) film grade was assessed at $1,250-1,330/tonne CFR China, hitting the highest level from August 2015, according to ICIS data.

The arbitrage window was opened between China and other overseas market from July, 2017, and it was expected to remain open in the Q1 2018. Despite the tight HDPE supply from Iran, other overseas suppliers had increased their exports volumes to China due to the higher profits.

Meanwhile, the re-export cargoes rose, according to domestic distributors.

Europen, the UAE and Vietnam had become major re-exporting countries to China.

Besides HDPE film grade, HDPE blow moulding (BM) grade is also the main import for re-exporting, said an east China-based trader.

Moreover, the January to October imported PE supply from India surged manifold to 225,000 tonnes to China, compared with just 35,600 tonnes in 2016, according to China custom. The main imports were HDPE and LLDPE grades.

Several Indian new plants’ capacities were released from 2016 resulting in increased exports from the country.

ONGC Petro-Additions Ltd (OPaL) put into operation early 2017 a 340,000 tonne/year high density polyethylene (HDPE) unit, and two swing HDPE/linear low density PE (LLDPE) lines with a combined capacity of 720,000 tonnes/year, according to market sources.

Indian’s Gail also started up its 400,000 tonne/year HDPE/LLDPE swing unit on Mar 2016, and its operating rate increased obviously in 2017.

Reliance Industries Ltd (RIL) has established on-spec production at its newly started-up 400,000 tonne/year low density PE (LDPE) unit and a 550,000 tonne/year linear low density PE (LLDPE)/high density PE (HDPE) swing in Jamnagar in October.

Except the increased supply from India, the new capacity from the US also became a major exporters to China.

Producer	Region	New expansion (tonne)	Status	Restart time
HDPE	LLDPE	LDPE
Ineos Sasol	La porte, TX	470			Under construction	Early 2018
Braskem IDESA	Nachital, Mexico	750		300	Completed; production started	Q2 2016
Nova	Joffre, Canada		454		Completed; production started	Dec 2016/shipping Jan 2017
Lyondell Basell	La porte, TX	500			Under construction	Mid 2019
Dow	Freeport, TX		400(ELLTE PE)	350	ELLTE run full rates in Q4, LD mechanical completion and on track for start up in Q1,2018	Q3 2017（cracker has started up）
ExxonMobil	Mont Belvieu, TX	650	650		One line trial run in End 2017	End 2017， （cracker in mid-2018）
Formosa	Point Comfort, TX	400		400	Under construction	H2 2018
Chevron Phillips	Old Ocean, TX	500	500		Completed；production started，but the cracker scheduled in Q1 2018	Q3 2017（cracker in Q1 2018）
Sasol	Lake Charles, LA		470	420	Under construction	LD early 2019,HD H2 2018
Dow	Seadrift, Texas; St Charles, Louisiana	125			Under construction	2018
Shell	Monaca, Pennsylvania	1050	550		Under construction	Early 2020s
Source:ICIS

Several plants like Chevron Philips, Dow chemical and Exxon Mobil had started up their PE plants in the second half of this year.

Some industry source believed the imports from American will have a great impact in 2018, especially in the second half of next year after crackers of EXXON and Chevron Phillips in Texas come into operations.

Some import traders reflected although the qualified products from new American plants cannot quickly arrive in Chinese market in large quantities, the off grade products for January 2018 shipment had been received, which also will affect the Chinese market sentiment.

Meanwhile, the offers of American cargoes for December/January shipment were increased obviously recently.

According to the survey, most operations of US plants had been back online by October after the storm hit in August in Texas.

For China domestic supply, Shenhua Ningxia phrase II started up a 450,000 tonne/year HDPE /LLDPE swing unit in Ningxia in end November.

CNOOC and Shell petrochemical plan to start up a 400,000 tonne/year HDPE and 300,000 tonne/year LLDPE unit in Guangdong province in Mar 2018.

Market players believe the heavy imports will weigh on the Chinese market import prices from December 2017.

The stronger resistance from end users is be a major factor which will contribute to the bearish market.

Some downstream factories making plastic and garbage bags said the gains of HDPE film prices were higher to the prices of their products, thus eroding margins, and they could not source cheaper Iranian material either because of its short supply.

Although the import supply was heavy in Q1 2018, market participants still believed that the market is volatile due to the restriction of coal-based suppliers.

The provincial government of Shaanxi announced its coal-based and naphtha-based chemical plants, along with other industries, will have to cut production by about half from 1 November 2017 to 31 March 2018 to curb pollution in the autumn and winter seasons.

Although there is no definite information on much production has been reduced due to stricter environmental landscape the detailed plan is expected to be implemented in Q1 2018.

Shaanxi is an important hub for coal-based chemical production in China, with an aggregate PE and PP capacity of 3.1m tonnes/year.

Outlook article by Angie Li