PE: alert to downward risk amid warmer speculation

Recently, PE market has experienced speculative price increases driven by multiple factors.

Prices of all varieties showed notable increases, and the average daily increase was generally around 50-200yuan/mt. Traders were active in selling and downstream buying interest was relatively high, leading to improved overall negotiation atmosphere, with particularly pronounced market performance. This rally primarily benefited from two favorable factors: First, the release of the Joint Statement on U.S.-China Economic and Trade Meeting in Geneva significantly improved trade conditions, markedly boosting market sentiment. Second, the low operating rates of PE plants led to periodic supply tightness, further propelling the price increase. However, the fundamental weakness in downstream demand remains unchanged, and whether the market can sustain this upward trend still depends on improvements in underlying fundamentals - warranting continued cautious vigilance.

Policy incentives have been released, boosting market sentiment.

The recent high-level U.S.-China economic and trade talks achieved substantial progress, significantly reducing bilateral tariff levels. The U.S. canceled 91% of its additional tariffs, while China correspondingly removed 91% of its retaliatory tariffs. The U.S. suspended 24% of its reciprocal tariffs, with China also suspending 24% of its counter-tariffs. This has substantially improved macroeconomic expectations for economic recovery, driving capital inflows into the chemical sector and pushing up PE market prices.

Supply tightness fuels speculative sentiment.

Currently, PE operating rates remain low as some plants closed for unexpected maintenance and profitability concerns. Although many new plants have been put into production in recent months, most of them run at low rates, resulting in a significant decline in overall operating rates. PE operating rates have now fallen sharply below 80%, reducing spot market availability. This temporary supply tightness has intensified the market speculation, with traders propping up prices and some intermediaries stockpiling goods in anticipation of further price increases, leading to a short-term acceleration in price gains.

Weak demand remains key concern.

Despite the market's short-term strength, downstream demand has not shown corresponding improvement. Agricultural and greenhouse film demand remains in the off-season, while orders from other key application sectors - including plastic films, packaging, and pipe materials - continue to reflect weakness. Most end-users purchase on need, with limited tolerance for high-priced raw materials. Excessively rapid price increases risk further suppressing essential demand, potentially leading to contracted transaction volumes.

Furthermore, although the U.S.-China tariff environment has improved, the recovery of downstream finished product exports will still require considerable time. Moreover, the market's interpretation of the policy benefits may be overly optimistic - although tariffs have indeed been reduced, specific implementation details remain unclear, and the unpredictable stance of the U.S. side adds further uncertainty to these positive developments.

Overall, driven by bullish policy and supply reduction, PE market may maintain relatively strong performance in the short term, though sustainability remains doubtful. If demand fail to keep pace effectively, the market may revert to fundamental logic once speculative fervor subsides, facing potential price correction pressure. It is advisable to be cautious in purchasing high-price goods, while closely monitoring downstream restocking patterns and plant operating rate changes. Particular attention should be paid to the final implementation of U.S.-China tariff resolutions to guard against the risk of sharp corrections after price surges.