China LDPE market has been leading all PE products for months, with significant price spread with LLDPE and HDPE. But the spread may gradually narrow down in the coming quarters.
First, new LDPE plants are soon to come on stream.
Jiangsu Sailboat has started up its methanol-to-olefins plant, and has started trial production of the 200kt/year EVA/LDPE swing plant. The new product may come into market in the first quarter of 2017. Added to the already started two coal-based LDPE productions in China (Shenhua Yulin and Shenhua Xinjiang), the total new LDPE capacity will reach 800kt/year, taking up a great part in all PE expansions in China.
And there are still two 370kt/year LDPE units from Zhongtian Hechuang, which are of largest possibility to come on stream in the second quarter of 2017.
Second, LDPE imports are likely to rise.
|New LDPE capacity in China in 2016-2017
|Zhongtian Hechuang I
|Zhongtian Hechuang II
In 2016, LDPE import volume reduced evidently. It was mainly because of the news of domestic LDPE capacity expansion. But the domestic production ability was overestimated by players, who chose to cut down imports and avoid risks. However, many of the capacities were delayed from original plan, and shortage of cargoes appeared as a result. It was why LDPE prices rocketed up in the past months to a highest place in the world.
After the LDPE price hike, sources were re-attracted, as foreign suppliers were interested to export to China. According to market survey on traders and plants, LDPE imports would likely to arrive intensively after the Chinese Lunar New Year holiday (late-Jan to Feb 2017). Market is sure to be impacted by the sudden increase of imports.
Third, downstream seek substitute for LDPE.
|LDPE imports in Jan-Oct 2015 and 2016 (unit: mt)
High-price of LDPE has affected market demand, as downstream lost their profit largely due to high feedstock cost. Downstream plants have been actively searching for other substitutes. Offers for high-grade mLLDPE are around 11,000yuan/mt, 1,000yuan/mt lower than LDPE. If the large price gap continues, players would inevitably seek mLLDPE sources instead of LDPE.
Above all, LDPE supply in China is going to increase. New producers, Sailboat and Zhongtian Hechuang, would appear in the first and second quarter of 2017. Imported cargoes are to arrive intensively after the Chinese Lunar New Year. And there is also other substitution of LDPE, impacting market demand. The price spread between LDPE and other PE products may narrow down in Q1-Q2 2017.