China PE slumps on oversupply

China’s spot domestic polyethylene (PE) prices have slumped since October and the outlook is bearish amid ample supply and lukewarm demand.

On 20 November, low density polyethylene (LDPE) prices in east China fell to their lowest in more than two years at yuan (CNY) 9,250/tonne ($1,333/tonne) EXWH (ex-warehouse). These levels were last seen on 31 May 2016, according to ICIS data.

High density polyethylene blow moulding (HDPE BM) prices in east China were assessed at CNY9,900/tonne EXWH, hitting their lowest level since 31 July 2017.

Spot LDPE prices have shed 7.5% from 10 October, while HDPE has plunged 13.2% from 16 October, the data showed. The percentage changes were computed from the dates the prices started their latest descent.

Inventories in China have piled up as most plants are running normal operations while ­demand is weak. Domestic PE supply in October increased by about 10% from September, with fewer plants undergoing maintenance.

Fujian Refining & Petrochemical’s two HDPE/linear low density PE (LLDPE) swing units with a combined capacity of 1m tonnes/year, and Shanghai SECCO Petrochemical’s LLDPE and HDPE plants with a total ­capacity of 800,000 tonnes/year are shut for turnarounds and will restart in December. China’s state-owned petrochemical giants Sinopec and PetroChina have recorded combined PE and PP inventories of more than 800,000 tonnes, far above the comfortable level, since 12 November, according to ICIS. The companies have been cutting ­offers to offload stocks.

Increased import supply has also weighed on domestic ­markets. In October, China’s ­combined PE and PP imports grew 20% year on year to 1.18m tonnes.

China’s HDPE output from January to October 2018 ­increased by about 15% year on year as there were expectations of strong demand for the grade. More HDPE/LLDPE swing units switched to producing HDPE ­instead of LLDPE.

CONSUMPTION WEAK

Actual consumption has been weak, particularly for HDPE pipes due to sluggish progress of pipe building in 2018. Although most downstream factories are running normal operations, they were buying cargoes on a hand-to-mouth basis. Meanwhile, ­export orders from downstream factories are decreasing due to the escalating US-China trade war.

Recent weakness in the macroeconomic situation with crude futures falling and volatility in the China LLDPE futures market aggravated the pressure on spot prices.

For HDPE, market players ­expect limited room for further weakness as spot prices have ­fallen below CNY10,000/tonne. ■