China PE prices may rebound in Q2 as scheduled turnarounds begin

Source: ICIS News


SINGAPORE (ICIS)--China polyethylene (PE) prices - after consistently falling since the Chinese Lunar New year holiday - are expected to rebound in Q2 on the back of scheduled turnarounds that start in April.

The concentrated maintenance from April to September and improved margins of end users may balance out the current high inventories, and may also change the current weak buying sentiment.

Linear low density polyethylene (LLDPE) film weekly prices were assessed at $1,140-1,180/tonne CFR (cost & freight) China, down by $45/tonne compared with the assessment on 2 March.

On 21 March, the LLDPE film was offered at $1,120-1,160/tonne CFR China, down by $65/tonne compared with the assessment on 2 March.

The accumulated inventories from local suppliers during the week-long holiday from 15-21 February is the main reason, which dragged down the prices in March.

On 21 March, Sinopec and Petrochina’s polyolefin inventories were understood to be over 900,000 tonnes, up by almost 50% compared with stocks before the holiday, according to market sources.

In an unexpected turn end users demand did not materialise after the holiday, who cited eroded margins and tight cash flow for the subdued buying.

A sharp rise in HDPE film grade in January due to comparatively tight supply at the time caused a serious erosion of margins of the downstream film factories.

The HDPE film prices went up by 5% in January also partly due to restricitons on waste plastic imports, according to ICIS data.

According to ICIS estimates the Chinese polyolefin downstream sector’s net profit is currently at 4%, the lowest in the last four months. These include agriculture film and BOPP film sector.

Tight cash flow in China in the first quarter of this year further compounded the PE market.

Some Chinese companies including traders and end users said they can hardly get loans from banks in Q1 2018. Some said the bank did not confirm the loans after their application.

A few said although they can get some loans, but the loans were delivered in batches to them, that caused the tight cash flow of local enterprises.

Market sources said they expect the new central bank governor Yi Gang would maintain a neutral monetary policy stance, that means China will not adopt a loose monetary policy in 2018.

They further said on the other hand, the monetary policy will not be too tight as that stunts economic growth.

Things are likely to change from next month as the market participants expect the prices to bottom out soon as PE replenishment begins by the end users, who also see that margins will improve as raw material costs will come down.

Some cable and wire factories and HDPE film package film factories said they were preparing for the feedstock purchase for April.

However, some market participants were of the view that higher prices will not be supported even though demand may pick up and margins may improve.

“The heavy inventories cannot be handled well until the concentrated maintenance season begins,” an east-China based trader said.

Most market players said they thought the price will stop falling and rebound when turnarounds get into full swing and loss of production offsets high inventories.

Several PE plants had maintenance schedule in from Q2 to Q3. (please see the table below)

Maintenance plans for PE units in China, 2018

producer PE capacity (kt) Scheduled T/A
Sichuan Petrochemical 600 40 days from 8th April
Zhongtian hechuang Energy 370 April
Shanghai Petrochemical 1PE 90

2PE 100

1 PE from May to August

2 PE from March to May

Jilin Petrochemical 575 May to June
Zhenhai refining and Petrochemical 450 40 days from May to June
Daqing Petrochemical 1110 45 days from July to September
Shaanxi shenmu chemical * 30 20-25 days in April
Shaanxi Yanchang China coal chemical 600 May
Baotou Shenhua Charcoal chemical 300 30 days in September
Ningxia Baofeng energy 300 30-40 days, Q2/Q3
Shanghai Secco 600 Oct to November
Fujian Refining and Petrochemical 900 40-50 days from Nov to Dec

*some maintenance cannot be confirmed by suppliers directly.

Focus article by Angie Li