In China, polyolefin markets had a strong start to the post-Lunar New Year holiday period. This was no surprise considering the sustained support from the cost side as well as tight import supply. However, the bullish sentiment has wavered recently, triggered by ample local supply and weakening Dalian futures.
A PP trader commented, “Two major producers’ combined polyolefin levels have been above 1 million tons since the beginning of the week. Downstream activity is expected to normalize by the end of the month as the holiday mood somehow still lingers. The bullish run in energy values and upstream costs have continued to support the markets but ample local supply and the steady losses in Dalian futures have dented the sentiment.”
Dalian futures settled steadily lower from February 8 to 16
May LLDPE and PP futures on the Dalian Commodity Exchange settled steadily lower five trading days in a row between February 8 and 16, losing CNY481/ton ($76/ton) and CNY412/ton ($65/ton) in total , respectively.
High local supplies, as well as limited demand, are cited as factors weighing on Dalian futures values during this steady fall along with the fluctuations in crude oil futures amid the geopolitical tensions between Russia and Ukraine.
Two major producers’ polyolefin inventories above 1 million tons
The two major producers’ combined polyolefin inventories were reported as 1.015 million tons as of February 16. These levels almost doubled when compared to late January when they were around 500,000 tons, which corresponds to the pre-Lunar New Year holidays.
In addition to the accumulation of stocks during the holiday period, the slow buying activity post holiday also added to the current supply conditions in the local market.
Faltering sentiment reflects on PP and PE prices
When compared to last week, homo-PP raffia, and inj. prices for Middle Eastern origins have softened by $20-30/ton to $1120-1150/ton CIF China, cash. As for PPBC inj., $10/ton of losses have been in place, with prices standing at $1180-1200/ton with similar terms.
As for PE, LLDPE and HDPE film prices for Middle Eastern origins have been flat at $1200-1220/ton and $1190-1220/ton CIF China, cash, respectively. As for LDPE film, prices have edged down by $10/ton to stand at $1520-1560/ton with similar terms.
Inside China, meanwhile, PP prices were down by CNY100/ton ($16/ton) from last week while PE offers were largely stable.
There are still some solid bullish factors despite headwinds
Although the markets have faced some headwinds from ample local supply and retreating Dalian futures, there are some bullish factors that are incontrovertible.
First and foremost, global crude oil futures are still strong, trading above the $90.00/barrel threshold. This also propels a firming trend in the upstream ethylene and propylene markets.
ChemOrbis Price Wizard shows that spot ethylene and propylene prices are currently standing at $1220/ton and $1160/ton CFR China, respectively. Spot ethylene prices have been moving up since the second half of January to hit their highest levels since September 2018 while spot propylene prices are at highest levels since mid-March 2021.
Putting the cost side aside, import supply for PP and PE is still tight in China.
As a PE trader said, “The number of import PE offers is limited as overseas producers prefer to sell to other outlets rather than China due to better netbacks. Yet, suppliers are still trying to keep offers stable even though China’s domestic market has faced some difficulties this week.”