PE producers cut production amid high oil price

Recently, under the continuous development of the situation in Russia and Ukraine, international oil price continues to rise. As of March 8, Brent futures fluctuates to close at $127.98/barrel, and WTI futures fluctuates to close at $123.7/barrel. Supported by crude oil, the ex-work price of petrochemical plants adjusts up, and LLDPE futures and PE spot markets has risen sharply.

Under this background, a production adjustment plan of Sinopec spread throughout the market recently, causing heated discussion not only in the plastic market, but also in the rest of the chemical market. So what impact will this adjustment plan have on the PE market?

Judging from the current crude oil price, and the cash flow loss of PE has expanded. Based on real-time oil prices, the current PE cash flow is as high as -2000yuan/mt. However, considering that the petrochemical group has oil reserves, the overall loss range has not reached such a high level. But given that the current oil price continues to strengthen, PE has already suffered losses of around 500-600yuan/mt. For petrochemical plants, the pressure is still relatively heavy.

As of March 2022, total China PE production capacity is 28.495 million tons, of which Sinopec fully holds 8.5 million tons, accounting for 29.83%. Taking into account the joint venture part, Sinopec currently accounts for about 39.71%, and the overall influence is not small.

According to the plan, the total production capacity of PE-related plants is 7.2 million tons, accounting for 25.27% of the total production capacity and 66.45% of Sinopec Holdings. Among them, it involves a total of 2.72 million tons of LLDPE/HDPE plants, 0.68 million tons of LLDPE plants, 1.08 million tons of LDPE plants, and 2.72 million tons of HDPE plants. It involves 1.83 million tons of recent shutdown, and 4.81 million tons of operating rate cuts.

As for the amount of loss, for the time being, if the plan is implemented as scheduled, the total production loss of PE will be around 0.15 million tons, accounting for about 6% of the monthly production. Details are as follows:

At present, about 30% of the plants have shutdown and cut production, and the specific situation of the rest plants will be updated in CCFGroup website in the later stage.