LDPE gains momentum due to the tight fundamentals

Since mid-August, LDPE rebounds after consolidates for nearly two months, and its price rising form 10,300-10,500yuan/mt to around 11,000-11,500yuan/mt. A similar situation also occurred at the beginning of 2021, but then as traders stocked up too much cargoes, the advancing momentum of LDPE was not enough and market price slumped. So how will the market develop this time? Regardless of external factors, the current supply and demand is tight, and LDPE still has substantial upside space.

1. More and more plants shut for maintenance, and some switch their production line to EVA.

The above is the current China domestic LDPE plants, with a total production capacity of 3.48 million tons, of which 500kt/year plant of Jiangsu Sailboat and Shaanxi Yanchang ChinaCoal II are basically fixed in production of EVA, basically no possibility of switching to LDPE. In addition, the 200kt/year LDPE plant of Sinopec Yanshan PC is currently in production of EVA, which produces LDPE for an average of only half of the month. The 140kt/year LDPE plant of Sinopec Qilu PC has shut for maintenance and may restart in late Sep, the 300kt/year LDPE plant of Shenhua Yulin plans to shut on Aug 19 for around 25days and the 250kt/year LDPE of CSPC is scheduled to shut in late Oct. Regardless of the temporary short-term shutdown of some plants, the overall supply of LDPE is stable at around 2/3 of the full-open period.

2 The new production capacity is still concentrated on LLDPE and HDPE products.

As mentioned earlier, many LDPE plants shut for turnaround and some switch their production line to EVA, but the biggest reason is the low production base of LDPE itself. The total domestic PE production capacity in China is 24.645 million tons, while LDPE plus LDPE/EVA plants is only 3.48 million tons, accounting for only 14.12%. The subsequent new production capacity is also basically concentrated in LLDPE and HDPE, such as the 400kt/year LLDPE/HDPE plant and 400kt/year HDPE plant of PetroChina Lanzhou PC (Changqing). In the four quarter, the 400kt/year LDPE plant of Zhejiang Petroleum & Chemical II may start up, but the launch time is not clear, and the impact on the market is far less than the LLDPE and HDPE.

3 The downstream peak season is coming soon

From a downstream point of view, there are two main application directions for LDPE, ordinary films and greenhouse films. The downstream peak season is approaching, and the operating rate of downstream plants is expected to gradually rise, especially the peak demand season for agricultural film is drawing near. The plants intends to stock up in advance, and the demand for LDPE is obviously on the rise.

In summary, the supply of LDPE on the low side, and demand is expected to gradually rise. The overall supply and demand is tight. If only the fundamentals are considered, the market outlook for LDPE is full of momentum and there is still a large upside space. In addition, many traders stocked up too much LDPE cargoes in the first half of 2021 have experienced a large number of losses. Under the current situation of high LDPE price, many traders and downstream plants do not dare to stock up in large quantities, so continuity is still guaranteed.