Industry News
Overall weak demand for polyolefins hinders the destocking process
Since November 16th, the polyolefin market has fallen under pressure due to expectations of loose supply and weak demand. According to Zhuochuang Information, the market reference prices for LLDPE and homopolymer PP pellets on November 27th were 8141.67 yuan/ton and 7490 yuan/ton, respectively, a decrease of 1.45% and 1.29% compared to November 16th. From the perspective of futures trading, both experienced deeper declines, with the main contracts falling by about 300 yuan/ton, both exceeding 3.5%, indicating a significant cooling of market sentiment.
Centralized maintenance return and production plan, expected to increase supply pressure
Recently, maintenance has begun to return, bringing substantial price pressure to the supply side. According to statistics from Zhuochuang Information, the loss of PP maintenance in the week of November 23 was 109700 tons, and the loss of PE maintenance was 47400 tons, a decrease of 5000 tons and 6800 tons respectively compared to last week. This means that PP/PE has a production capacity return of 0.5 and 6800 tons, respectively, which is reflected in the steady recovery of operating load rate and further relaxation of supply.
On the other hand, the maintenance return cycle has not yet ended, and the excessive production plans in the market have given rise to market supply pressure expectations, resulting in a significant decline in the futures market. In terms of production plan, there will still be 450000 tons of PP put into production in 2023, over 2 million tons of PP production capacity and over 3 million tons of PE put into production in the first quarter of 2024, with strong expectations of increased supply pressure.
The overall demand performance is weak, and the destocking process is hindered
The downstream demand for polyolefins is relatively weak, and agricultural plastic films are in the off-season. Other demands are relatively stable, with rigid demand being the main demand. The overall operating load rate in the downstream has slightly declined. According to the data, the decline in agricultural film is significant, with a decrease of about 8 percentage points from early November to present. The changes in BOPP, PE film, injection molding, and plastic weaving are relatively stable, with a range of no more than 1.5 percentage points. In this context, the process of de stocking polyolefins has slowed down, coupled with a significant decline in futures trading, and the accumulation of buying and wait-and-see sentiment has further hindered upstream enterprises from de stocking. On November 24th, the inventory of PP and PE enterprises for the week was 425000 tons and 832000 tons, respectively. Although there was a month on month decline, it was higher than the same period last year. From the inventory level on November 27th, there is a slight accumulation of inventory. The inventory level of major PP producers is 640000 tons, an increase of 35000 tons compared to the previous period. The inventory level for the same period last year was roughly around 600000 tons. The positive market situation brought about by the inventory decline in October is gradually weakening, and the inventory factor is gradually turning into market pressure.
Overall, the abnormal downward trend in polyolefin market prices since November 15th is mainly due to the structural imbalance in the fundamental stage. We expect the polyolefin market prices to continue their downward trend in December, but with unexpected maintenance and cost support, the speed will slow down. We do not rule out the possibility of stopping the decline. The following is a specific analysis:
The recent PDH device has experienced unexpected maintenance, mainly due to the pressure it faces in production and operation, as well as the rise in raw material costs and the decline in by-product hydrogen prices, putting pressure on industry chain profits. Since June, the theoretical gross profit of the PDH unit has been further compressed, mainly due to the rise in propane prices and the instability of the polypropylene market. At the same time, the price of by-product hydrogen has also declined, putting significant pressure on the unit's revenue. If profits remain in the current state for a long time, combined with the phenomenon of lower than expected demand, it is not ruled out that there may be further maintenance beyond expectations or support for phased market prices.
On the other hand, the cost side may rebound, becoming an important factor supporting the bottom of the market. Recently, crude oil prices have shown a stabilizing trend after experiencing a decline, and market analysts generally believe that the possibility of OPEC extending production cuts is high. Although there are certain differences among its member countries, with the mediation of Saudi Arabia, the probability of reaching an agreement is high, which may lead to strong fluctuations in crude oil prices. In terms of coal prices, the national temperature has significantly decreased recently, and various regions have entered the heating season. There is a seasonal demand for coal to support it. Therefore, although coal supply is guaranteed, coal prices may also remain stable, and there is little room for a downward trend. Recently, it has shown a trend of stabilization and recovery. The raw material side supports the price of polyolefins, which may show a temporary stop in decline under significant fundamental pressure. In addition, if OPEC cuts production beyond expectations or the dovish voice of the Federal Reserve strengthens, it is not ruled out that polyolefins may recover.
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