Plastic: There Is A Short-term Demand For Repair, But It Is Still Not Optimistic in The Medium To Long Term

May 09, 2023

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Before and after the holiday, plastic prices followed the decline of crude oil, breaking through the previous low range and showing a significant downward shift in the center of gravity.

Short term crude oil has to some extent stopped falling, combined with a strong basis, which slightly supports plastic prices. Although the market trend is still weak, it is not advisable to chase short positions in the short term under a strong basis pattern. However, before the overall short position trend changes, it is not advisable to easily copy the bottom. For spot traders, they can try the sell basis operation of selling spot to buy futures.

In the future, plastics will still face expectations of increased supply, weak demand, and increased import pressure. In terms of the current cost profit pattern, various processes have basically reached the arithmetic profit and loss line. Subsequent construction and production transmission may lead to a lack of optimism in the second quarter and longer cycles. After a brief recovery, plastic prices may still be weak.

Risk points: Macro environment exceeding expectations, raw material prices exceeding expectations, supply exceeding expectations

Logical Trace

01

In terms of price difference:

The monthly basis difference is relatively strong, and it is not suitable to chase short in the short term

As of May 5th, the plastic basis difference was 256 yuan/ton, and the 9-1 price difference was 77 yuan/ton. Driven by crude oil prices, plastic prices have experienced a significant decline, but spot prices have shown resistance compared to futures, with a significant strengthening of the basis. In the short term, there is a demand for a rebound in the basis to repair the situation, which provides some support for prices. Although the market trend is weak, it is not suitable to chase short in a pattern of strong monthly basis. However, before the overall bearish trend changes, it is not recommended to easily copy the bottom. For spot traders, they can try the sell basis operation of selling spot to buy futures.

02

In terms of demand:

Limited seasonal off-season support, making it difficult to boost short-term demand

Before the holiday, the start of agricultural film production decreased by 6% to 29%, while other sectors remained stable. The overall demand for agricultural film is decreasing, and the production season for plastic film is approaching its end. The demand for greenhouse film is still showing signs of weakness, and the industry’s construction continues to decline. In terms of pipes, some large factories are operating at around 50-80%, while small and medium-sized factories are operating at around 30-50%, with a slight decrease in factory operations. In the future, it is difficult to see a significant improvement in demand for agricultural film in the short term, and some manufacturers may have speculative stocking intentions. However, with the arrival of seasonal off-season, short-term demand is weakening and there is little room for expansion.

03

On the supply side:

May maintenance plan increased, supply pressure slightly eased

Before the holiday, PE production enterprises started construction at 82.51%, with a weekly increase of 0.17%. The maintenance loss was 67800 tons, with a month on month increase of 4900 tons. The maintenance loss is at a moderate to high level. The total maintenance losses of PE production enterprises in April were 27.28 tons, a decrease of 16500 tons compared to March. It is preliminarily estimated that some production units will continue to operate for shutdown in May, and the maintenance loss in May is expected to be 316400 tons, an increase of 43600 tons compared to April. And there are currently no plans to increase production capacity before July, and the short-term domestic supply pressure will be eased.

04

In terms of imports:

There has been an increase in imports to the port, and the internal and external price difference remains slightly inverted

Both domestic and international markets have weakened, and market participants tend to adopt a wait-and-see attitude, leading to a weakening of inquiry enthusiasm. Before the holiday, a large number of low-priced injection molded goods from the Middle East arrived at the port, causing a decrease in market offers, opening up import arbitrage, and an increase in imported goods arriving at the port. However, domestic prices are still in a depression, and the domestic demand situation is not as expected, which may suppress the increase in imports, making it difficult for short-term imports to increase significantly.

05

In terms of inventory:

The holiday inventory has accumulated inertia, and the overall year-on-year pressure is not significant

As of May 5th, the inventory of sample production, traders, and ports showed a month on month increase. The increase in inventory is mainly due to inertia accumulation during the short and long holidays, coupled with continuous decline in international oil prices, which has suppressed market confidence. After returning from the holiday, the market is still mainly on the sidelines, with limited downstream restocking. But overall, the inventory pressure is not significant, and it is at a lower than average level compared to the same period last year.