Impact of the escalating Russian-Ukrainian conflict on PE market

On Feb 24, the conflict between Russia and Ukraine has escalated to military action. Affected by this, international oil prices soared, with crude oil rising 9% intraday, breaking through $100/barrel for the first time since 2014. So, what effect do the conflict have on the PE market?

First of all, seeing from the current market, although PE price has rebounded slightly since Feb 24, it is mainly driven by the high cost of crude oil. Due to the relatively loose fundamentals of PE market, the increase is not obvious. At present, as the oil price is above $90/barrel, the real-time cash flow of PE has hit -800-(-)700yuan/mt. Although the petrochemical group has oil reserves, the impact of high oil prices on the market will be gradually highlighted as time advances. Currently, petrochemical plants are required not to control the overall price trend from the ex-works price link. As for the operating rate, some plants of Sinopec Maoming PC have operated with lower rates under the influence of the conflict, while other petrochemical plants did not reduce their operating rate for the time being.

Secondly, from the perspective of PE import, China does not import much PE from Russia and Ukraine. In 2021, China imported 14.589 million tons of PE as a whole, of which 498,000 tons were imported from Russia, accounting for 3.42%, while imported from Ukraine only about 1,098 tons, accounting for 0.01%. In terms of this ratio, the overall import volume of the two countries are small. Also, it’s heard that the polyethylene plants in Russia are relatively far away from the warring areas of Ukraine, and the overall impact is still limited.

However, what still needs to be considered is the impact of the economic sanctions imposed by the United States on Russia. On Feb 24 local time, the United States has announced a new round of sanctions against Russia, including: the United States and its allies will restrict Russia’s ability to trade with dollars, euros, pounds and yen, to impose sanctions on the financial industry, etc.

To sum up, the conflict between Russia and Ukraine has little impact on PE market, except that it affects crude oil and thus forms a certain support for PE from the cost side.