China LDPE at 10-year low; may stay weak on ample supply

SINGAPORE (ICIS)–China’s domestic low density polyethylene (LDPE) prices have fallen to their lowest level in 10 years and may remain weak because of ample supply.

Low density polyethylene (LDPE) is used in the manufacture of trash bins, among others. (Photo by Michael Weber/imageBROKER/REX/Shutterstock)

In the last trading day of March, spot prices in east China were assessed at yuan (CNY) 8,950/tonne ($1,334/tonne) EXWH (ex-warehouse), down by CNY175/tonne or 2% from 15 March, according to ICIS data.

Spot domestic prices were last seen at these levels in 2009, the data showed.

LDPE prices have been declining since mid-March due to high inventories from producers and importers.

Strong availability of supply have kept prices in both the domestic and import markets under pressure.

China LDPE imports posted an 11% year-on-year increase in the first two months of 2019, despite a strong increase in domestic capacity in recent years.

Prices of imported cargoes have been lower than those of domestic cargoes for the most part of 2018, encouraging strong imports.

On 29 March, the yuan-based prices of imported LDPE in east China were assessed at CNY8,825/tonne ex-warehouse (EXWH), down by CNY125/tonne from 8 March, ICIS data showed.

Some PE traders gave out a discount of about CNY100/tonne to spot cargo purchases in late March, with invoicing to be delayed to April, ahead of the three-percentage point cut in value-added tax (VAT) for the manufacturing sector to 13% on 1 April.

In 2018, China’s LDPE imports grew 23% to 2.9m tonnes due to plant start-ups overseas, while no new capacity came on stream in the domestic market.

But during the 2016-2017 period, six new Chinese plants started up with a combined LDPE capacity of 1.09m tonnes, boosting domestic capacity by 53% from 2015, according to ICIS data.

Company	LDPE capacity (tonnes/year)	Location	Start-up dates
Shenhua Coal to Liquid and Chenical Co	300,000	Shannxi	Dec-15
Shenhua Xinjiang Energy	270,000	Xinjiang	Jun-16
Zhongtian Hechuang Energy	120,000	Inner Mongolia	Aug-17
Zhongtian Hechuang Energy	250,000	Inner Mongolia	May-17
Sailboat Petrochemical	100,000	Jiangsu	May-17
Sailboat Petrochemical	50,000	Jiangsu	May-17

Source: ICIS

“The demand is normal these years but oversupply dampens the prices,” a trader said.

Some players are optimistic about the LDPE market in 2019 in the absence of new plant starting up in China.

Demand for LDPE is seasonally strong at this time of the year until May, mainly from the packaging industry as most downstream facilities are running normally.

With current prices at their lowest in a decade, “downstream factories may consider buying cargoes, which will support the market”, another trader said.

Availability of cheaper import cargoes, however, will prevent or cap any price uptrend, a third trader said.

Focus article by Lucy Shuai

($1 = CNY6.71)