Polyolefin market still has downside risks in the medium term

The sharp decline in crude oil in October prompted oil-produced olefins to increase profits by nearly 90 times, and manufacturers’ production power has increased significantly. In addition, the end of this year to the first half of next year, a large area of ​​coal-to-olefins production, polyolefin production will usher in the peak. The downside risks to China's economy have caused downstream demand for polyolefins to weaken, and the pattern of PE and PP oversupply is hard to ease, and downward pressure on futures prices.

Profit advantage stimulates expansion of production scale

In the second half of this year, international crude oil prices have entered a downward path. In the last trading day of September, the downtrend accelerated. On October 15, the US crude oil plunged below 80 US dollars/barrel for the first time in more than two years, and the IPE oil price fell below 85 US dollars/bbl. In the whole month of October, the US crude oil price fell by 10.33%, and the drop in oil sales was 9.11%. At the daily level, the oil price is supported at around 80 US dollars/barrel, but with the Fed completely withdrawing QE, the US dollar is strengthening, and potential crude oil production continues to climb, the mid-term oil price is expected to test the US$75/barrel barrier.

The drop in crude oil prices led to an increase in the profits of oil-produced olefins: On June 13, the profit of oil-based PE was 22 yuan/ton, and on October 15 its profit had risen to 1980 yuan/ton, an increase of nearly 90 times. The increase in profits will inevitably stimulate the production enthusiasm of manufacturers, and the supply of PE and PP will continue to expand.

Part of the overhaul device is gradually resumed in November

The recent overhauls of PE and PP units are relatively high, and the decline in output provides support for the price of polyolefins. However, some installations are planned to resume production in November and supply pressure is still difficult to ease.

At the same time, from the second half of this year to next year, the domestic production capacity of coal-to-olefins projected to be put into production will reach 4.6 million tons/year, and the market will be greatly impacted.

PP stocks continue to accumulate, PE is more likely to switch production

After the raw material price fell sharply in the upstream, in October, the PE and PP stocks did not drop significantly as expected, and PP stocks continued to increase. The reason may be that petrochemical companies choose to maintain the price in the fall of oil prices. The downstream demand side believes that there is still room for price drop, and the enthusiasm for stocking is reduced, leading to the accumulation of upstream stocks. From the continuous increase in the PP ex-factory prices of petrochemical enterprises in the past week, PP stocks are expected to continue to accumulate, which will suppress the price of the period.

LLDPE inventory pressure is relatively small, mainly because HDPE prices are currently higher than LLDPE prices. Take Sinopec East China Daqing as an example. In May of this year, the HDPE ex-factory price was RMB 100/t lower than that of LLDPE. The price of HDPE rose from June to August, with a price difference of RMB 50-300/t, while the price of LLDPE fell sharply between September and October. The spread exceeded 1,000 yuan/ton. The current spread relationship makes manufacturers have higher enthusiasm for producing HDPE. Manufacturers with full-density devices are most likely to make dynamic adjustments to their production situation, and later reduce the production of LLDPE to HDPE, which will help LLDPE to go. in stock.

Downstream demand is not optimistic

The weakening of China’s macro economy has also had a negative impact on PE and PP demand. According to ICIS, the demand for polyolefins in the past has generally grown at a rate of 15% to 20% in the past, but the growth rate has now fallen below 20%.

The third quarter should have been the production and demand of thin film products. However, in the third quarter of this year, the total production volume of plastic films was only 3.08 million tons, a decrease of 130,000 tons from the second quarter, an average monthly increase of only 6.10%, and an average monthly increase of 12.26% in the second quarter. The total production volume of agricultural films in the third quarter was 530,500 tons, which was an increase of 12,400 tons compared to the second quarter, but the increase was less than the second quarter.

The most unexpected is the decline in the output of refrigerators. According to past data, summer should be the peak season for the production of refrigerators, but in the third quarter of this year, the output of household refrigerators fell for the third consecutive month, and the total output in the quarter reached a new low in nearly four years.

Traditionally, near the winter, the output of household washing machines was relatively high. In the fourth quarter of last year, the output of washing machines totaled 20.223 million units, compared with 18.62 million units in the same period of the previous year. However, from the sales in the March-September period of this year, only 7 months were seen. The two-month output increased year-on-year, with a year-on-year decline of more than 10% in September. The market is pessimistic about the production in the fourth quarter.