PE expects an uptrend

Since the Spring Festival, LLDPE futures fluctuates lower, and total plastic inventory (mainly PP and PE) in Sinopec and PetroChina have been high, and PE market has generally shown a downward trend. However, in end Feb, due to the influence of geopolitical issues, crude oil soars and the cost side of PE has been supported. In addition, as the spring turnaround season is approaching and downstream peak season is about to come, PE market expects an uptrend.

1. Crude oil price rises.

Recently, the conflict between Russia and Ukraine has escalated to military action, international oil prices soared, breaking through $100/barrel for the first time since 2014. PE market has been supported from the cost side, however, the short-term conflict between Russia and Ukraine has led to an increase in uncertainty. PE market may face risks in the medium and long term, but in the short run, PE market has still been supported, and expects an upward trend in Mar.

2. Total plastic inventory (mainly PP and PE) in Sinopec and PetroChina declines.

Total plastic inventory (mainly PP and PE) in Sinopec and PetroChina accumulates evidently during the Spring Festival holiday. On the last working day before the holiday, the inventory is around 540kt, and it increases to around 990kt on the first working day after the holiday. The petrochemical plants have a great destocking pressure, and spot market has been affected. Spot traders offer lower, and downstream secures at market low end. The market is in wait-and-see stance, and market transaction is mediocre. However, Sinopec launches promotions around February 21-24th, making the inventory decline sharply to around 900kt. Moreover, the spring turnaround season approaches, some plants are scheduled for maintenance, the supply is expected to decrease and the inventory pressure may ease. For example, Shanghai Golden Philips plans to shut its HDPE plant and Sinopec Yangzi PC (YPC) plans to shut HDPE/LLDPE plant and HDPE plant in Mar.

3. PE downstream enters to the peak production season.

In March, PE downstream is about to enter to the peak season. Under normal circumstances, most of the agricultural film plants will enter the peak stage of production in the first half of the year, and the orders of agricultural film factories may be good. For other products, such as HDPE, downstream demand may also enter a peak period, as the weather goes warmer, the demand for pipes may increase. Therefore, in March, the demand for PE raw materials from downstream factories may be strong, and the PE market is expected to rise.

To sum up, PE market is expected to rise in March.