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Insight | Time:May 29 2018 4:05PM
Heavy LDPE pulls down whole PE market
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Domestic PE market has gradually entered the off-season, and there has been a significant decline in demand. Market has been roughly balanced by intensive turnarounds during Apr-May, but the weakness in LDPE market has pulled down overall sentiment. LLDPE spot and futures bear high relatives with LDPE and are affected directly, and less relevant HDPE sources also receive apparent hit.

Since May 17, LDPE price has declined to be flat with LLDPE, and the current average price of LDPE has been lower than LLDPE for around 50yuan/mt. Last week, some traders offered Indian LDPE at futures L1809 minus 100yuan/mt, and Iran LDPE flat with L1809. The price of LDPE is now lower than that of LLDPE. It has not happened in the past few years, even not in 2016 when new LDPE capacities boomed out and pressured down the prices significantly.

The downturn of LDPE is mainly due to the weakening of fundamentals. With the end of the agricultural film season, the demand for LDPE has gradually entered the off-season. On the supply side, however, both domestic and imported goods have maintained stable. Compared to March and April, supply in May has even increased. As a result of this shift, LDPE's stocks are high and still accumulating, and the market naturally continues to weaken.

First, domestic supply is getting longer in May. The peak turnaround season of LDPE devices is in March and April, and most of the production has been resumed in May, leading to a rise in the domestic supply of LDPE (The turnarounds of LDPE during Mar-May are listed in below table).

Plant Production Capacity (kt/year) Close Restart Production loss (mt)
Sinopec Shanghai Petrochemical LDPE 90 28-Feb 20-Mar 4,932
LDPE 90 13-Apr 11-May 6,904
Sinopec Yanshan Petrochemical LDPE 200 4-Mar 17-Apr 24,110
LDPE 60 26-Mar 12-Apr 2,795
LDPE 60 16-May 30-May 2,301
Zhongtian Hechuang LDPE 120 23-Mar 10-Apr 5,918
LDPE 250 10-Apr 30-Apr 13,699
LDPE 250 8-May 19-May 7,534
Sinopec Maoming Petrochemical LDPE 120 25-Mar 4-Apr 3,288
LDPE 120 9-May 22-May 4,274
Shenhua Yulin LDPE 300 4-Apr 25-Apr 17,260
Total         93,014

In May, only a small number of devices such as Sinopec Yanshan’s 60kta line 1, Sinopec Maoming’s 120kta Line 1, and Zhongtian Hechuang’s short-term close. It is planned that the rest of the petrochemical and coal chemical plants will be basically stable in production.

In the past few years, millions of tons of new LDPE capacities are put into production, and the LDPE device cannot be switched as that between LLDPE and HDPE. Domestic market already feels difficulty to digest such large volumes, and the pressure has been very high recently.

Second, the import volume of LDPE increases over 20% year-on-year. In March 2018, China’s LDPE imports broke the record and hit 264kt. In April, the volume was not much lower at 235kt. From January to April, the total import volume of LDPE reached more than 940kt, an increase of more than 20% over the same period in 2017, causing a more severe blow to the domestic LDPE market that is already long.

The risks in the LDPE market have not been fully released. Observing the auctions of LDPE products, Shenhua Yulin and Shenhua Xinjiang (two largest coal-chemical LDPE producers in China, both with 300kt/year capacity) have more than one thousand tons of goods for sell every day, while the number of transactions has never been very high. This is the epitome of the current domestic LDPE market. It even becomes a common phenomenon that there are only occasional transactions of tens of tons or zero, and under this circumstances, the stock of LDPE would pile up high in CTO plants and becomes the biggest risk of the market.

Heavy stocks in domestic plants coupled with the continuous supply of imported goods, the downturn of LDPE can hardly be reversed recently. In the context of LDPE's continuing downturn, LLDPE and HDPE are affected, although their downward space may not be large, the duration of continuous downturn may be extended.
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