PE fluctuates higher supported by crude oil and plant maintenance

Since mid-Jun, PE market stops falling, and market price rises sharply, especially LDPE. Many grades of LDPE rises above 10,000yuan/mt, and LDPE for heavy packaging is at around 11,000-12,000yuan/mt. LLDPE and HDPE price inches up accordingly. However, due to the excessive increase in the early period, the market drops correctively. Seeing from the entire PE market, it mainly supported by the rising commodity market and speculative behaviors in the LDPE market, so will PE continue to rise in the future? Overall, PE market may continue to move higher.

Crude oil continues to rise

Starting from 2021, crude oil price moves higher continuously. Recently, supported by various favorable factors, such as the slower-than-expected negotiations between the United States and Iraq, the increase in consumption of oil products, and so on, the trend of crude oil is relatively strong. The prices of WTI and Brent have exceeded $70/barrel, and the price of Brent has even exceeded $75/barrel. It is generally believed that crude oil may continue to rise, and few even believe that the price may rise above $100/barrel.

Under the condition of rising crude oil, the cost is high, and PE price may be supported.

Imports fall short of expectations

According to customs statistics, from January to May 2021, China's total imports of PE were 6.5819 million tons, a decrease of 4.16% from last year. And seeing from the monthly data, the overall PE imports are gradually decreasing. The decrease in imports is mainly affected by the following factors: (1) the plants in the Middle East shut for maintenance intensively in the first quarter, and the overall supply decreased significantly; (2) U.S. reduced its supply to China in the first quarter due to the hurricane; (3) The Chinese market was more resistant to high-priced USD-denominated cargoes, and buying interest dropped sharply on the whole; (4) the supply of European market was limited due to the pandemic and plant problems, and the price is higher than that of the Chinese market. Therefore, cargoes from the Middle East and the United States that were planned to be shipped to China had been shipped to Europe.

Currently, European market price is still high, while in the Chinese market, due to the supply of new production capacity, the demand for high-priced imports has declined, and the purchasing enthusiasm of first-hand suppliers has also been greatly reduced.

Some China domestic plants shut for turnaround

At present, the operating rate of China domestic PE plants is relatively low, basically below 90%. In the future, Pucheng Clean Energy, Shaanxi Yanchang ChinaCoal, Jiutai Energy, ChinaCoal Mengda, Sinopec Sabic Tianjin (SSTPC), and Yan'an Energy & Chemical plans to shut for maintenance in Jul, mainly LLDPE and HDPE plants. The supply of LLDPE and HDPE goods will be significantly reduced, and the operating rates is likely to maintain at around 80-90%.

To sum up, under the cost advantage of crude oil, coupled with the expected reduction of China domestic and import supply as a whole, although the downstream is currently in the off-season, it is supported by speculative demand, and the demand from July to August is expected to be better than the second quarter. Under the circumstances, PE market may fluctuate higher. However, the market is in strong speculative atmosphere, and it may retreat from high-price.