China domestic PE to stay firm on reduced supply, better demand

SINGAPORE (ICIS)–China’s domestic polyethylene (PE) prices are expected to be supported throughout the second quarter by improving demand amid tighter spot supply.

On 20 April, linear low density polyethylene (LLDPE) prices were assessed at Chinese yuan (CNY) 9,550/tonne ($1,516/tonne) EXWH (ex-warehouse) east China, up by 3.2% from 27 March, according to ICIS data.

Over the same period, prices of low density polyethylene (LDPE) rose by 5% to CNY9,975/tonne EXWH east China, the data showed.

Spot availability in April is limited due to a concentration of plant turnarounds, as well as unplanned shutdowns. Inventory will decline further with more plants due to shut for maintenance.

Naphtha-based PE and polypropylene (PP) inventories at domestic producers were recorded at around 800,000 tonnes last week, down from more than 1m tonnes in mid-March, according to ICIS data.

Suppliers have been raising offers in view of improving demand.

Demand from downstream cable and packaging film production has been robust, an east China-based trader said.

Meanwhile, some traders were stocking up on cargoes ahead of the expected cut in China’s value-added tax (VAT) on the manufacturing sector in May to 16% from 17%.

“The cut in VAT may lead to a short-lived increase in PE buying momentum. Margins will widen to some extent if we stock up in April and sell them in May,” a trader said.

The PE price uptrend, however, has deterred some downstream buyers, which retreated to the sidelines. Some market players noted that the recent decline in LLDPE futures may weigh down on the spot market.

On 20 April, the September 2018 LLDPE contract at the Dalian Commodity Exchange (DCE) closed at CNY9,130/tonne, down 1.62% from the previous day.

Meanwhile, supply may get a boost at the end of the month, when CNOOC and Shell Petrochemicals Co (CSPC) is due to begin production at its 700,000 tonne/year PE plant in Huizhou, Guangdong province. But the start-up schedule is still fluid, according to company sources. The unit is currently undergoing trial runs.

Traders may raise their import volumes from the Middle East amid an open arbitrage window, as Chinese domestic prices spiked in the second half of April, market sources said.

LLDPE cargoes were offered on 19 April at $1,160/tonne CFR (cost & freight) China, lower by $75/tonne compared with the ex-warehouse price in east China, according to ICIS data.

($1 = CNY6.30)

Focus article by Lucy Shuai

Picture: Ningbo-Zhoushan port in Zhejiang province, China. (Source: ImagineChina/REX/Shutterstock)