High season demand may support strong fluctuations in plastic prices

Aug 30, 2023

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Since the end of June, polyolefins have started to rise with the rise of crude oil prices, especially in August, stimulated by macroeconomic stable growth policies, the energy chemical varieties have successively reached new highs, with the plastic 2401 contract reaching a maximum of 8444 yuan/ton. Although the prices of plastic plates have been stagnant recently, overall, it is expected that the plastic 2401 contract will continue to operate stronger in the short term.

In terms of specific analysis, on the cost side, in the international crude oil market, OPEC’s production reduction in July released positive signals, while the peak fuel consumption in the United States during the summer and the positive economic outlook in Asia both brought about a push, and crude oil prices continued to rise.

However, the US PMI data fell short of expectations, concerns about weakening oil demand have resurfaced, coupled with Iran’s significant return in August production, and recent news that Venezuela may release crude oil production capacity, increasing concerns about the weakening of supply and demand balance in the crude oil market and dragging down a slight correction in crude oil prices.

However, it should be noted that there is still no significant weakness in refined oil products at present. Gasoline has experienced fluctuations, but diesel is also relatively strong. The logical confirmation of the weakening of terminal demand still requires time, which may result in crude oil maintaining a strong and volatile pattern in the short term and providing strong support for polyolefin prices from the cost side.

Furthermore, from the perspective of plastic itself, the delivery of the 09 plastic contract is approaching, with the return of futures and the repair of basis. In the medium to long term, the supply-demand contradiction in the 01 contract is not prominent.

This is because, on the one hand, the subsequent production of PE devices this year is focused on non-standard brands, with little impact on standard products.

After the peak maintenance period, the devices gradually return. According to data statistics from Zhuochuang, as of August 24th, the weekly operating load of domestic PE was 81.81%, and in July, the operating load of domestic PE was 75.52%. Overall, the operating load of PE in August has shown an upward trend, but the linear production schedule in the early stage has been at a high level, and the production part has returned, with limited scope for further increase.

In terms of imports, according to customs data, China’s polyethylene import volume in July 2023 was 1.0353 million tons, a decrease of 3.88% compared to the previous month. The estimated import in August is about 1.2 million tons, and the PE import arbitrage window will open from July to August, mainly for non-standard varieties such as HD and LD. After September, most of the imported products may be LD and some HD varieties, with relatively few standard products expected. Overall, the supply pressure for PE standard products on the supply side is not significant.

On the other hand, looking at the demand side, we are facing the “Golden Nine Silver Ten” peak season, where the construction of agricultural film falls short of expectations from June to July. Currently, during the transition period from low to high season of agricultural film, as of August 24th, according to data from Zhuochuang, the construction of agricultural film is at 37%, which has reached the average level of previous years. Order follow-up is limited, and the operating rate of large plastic film enterprises is generally between 30% and 70%. The seasonal peak season has led to a continued increase in construction, peaking in late October and early November, Provide strong support for prices.

Based on comprehensive analysis, considering that there is still no significant accumulation of plastic inventory during the traditional off-season demand, and the inventory is in a relatively low position compared to the same period last year, the 01 contract has experienced a peak demand season, with low downstream raw material inventory and replenishment demand. The supply and demand situation is acceptable, and the short-term prices are still strong. In the medium to long term, attention should be paid to the recovery of demand.