Imported PE to float up amid various supports

Since the third quarter, supported by the RMB market, CFR China PE market has been relatively strong. After two months of increase, the market has returned to consolidation since September. From the current market perspective, there are more short-term positive news, and there is a high probability that the market will be relatively strong.

Since the second half of the year, overnight crude oil prices have been steadily rising, particularly showing strength in September. Recently, there have been no significant signs of weakening in the fundamentals of the oil market. Moreover, the macroeconomic side has been relatively strong, providing some support to the crude oil market. On Sep 18, October WTI crude oil futures contract rose by $0.71/bbl, or 0.78%, to settle at $91.48/bbl, while November Brent crude oil futures contract rose by $0.5/bbl, or 0.53%, to settle at $94.43/bbl.

The rising crude oil prices provides significant cost support to the polyethylene market, especially considering the persistent and substantial cash flow losses in the PE industry (with domestic cash flow losses of around -2000yuan/mt for crude oil and -1000yuan/mt for naphtha)., which makes the probability of a decline in the PE market extremely low. Similarly, PE CFR China prices also remain relatively robust due to the cost support.

Entering the mid-to-late September, most downstream industries are entering their peak demand season. One of the most notable sectors is agricultural films, particularly the demand for mulching films and greenhouse films, which rebounds significantly. Some large factories operate at full rates, while others are gradually receiving more orders and increasing their operating rate, leading to a relatively high demand for raw materials. In addition, other downstream sectors have also shown a positive performance overall with support from the traditional peak demand season in Sep. The demand for USD-denominated goods has also increased significantly, whether it is for general trade or feed processing trade, thereby providing a noticeable boost to the imported PE market. Furthermore, as the National Day and Mid-Autumn Festival holidays approach, many downstream plants may stock up in advance, which will also provide significant support to CFR China market.

Apart from the support from cost and demand side, the price spread between domestic and imported PE market gradually narrows. Taking LLDPE as an example, while the RMB market has remained volatile, considering the usual spread of around 200yuan/mt, there is still room for upward movement in the imported PE market. Moreover, there is an expectation of RMB appreciation in the near term, which further increases the probability of an uptrend in the imported PE market. For instance, LDPE RMB price is higher than that of CFR China market price, with a more distinct upward potential compared to LLDPE. However, the current exchange rate fluctuations remain frequent, bringing significant instability to the imported PE market, and traders are suggested to pay attention to its impact.