The plastic market is beginning to see a rainbow, and its duration may not last long

Jul 28, 2023

Leave a message

The rise in cost has significantly supported the prices of the plastic market

The price of US crude oil has broken through the upper limit of the fluctuation range, which has significantly boosted the prices of the plastic market. The main contract price of WTI crude oil started from June 29th, rising from $67 per barrel to $77 per barrel on July 21st, an increase of 14.9%. It is worth noting that the US oil price has exceeded the price fluctuation limit of $75 per barrel in May and June, which has stimulated the bullish sentiment of plastics. The plastic price index accelerated its growth from July 12th to 14th.

According to the analysis of the reasons for the rise in oil prices, the first reason is that the United States announced the latest CPI data in June, which recorded 3.0%, the smallest increase since March 2021, and the core CPI, which recorded 4.8%, the lowest since November 2021. After the announcement, the U.S. Dollar Index fell rapidly, the risk appetite of the commodity market rebounded, and the oil price continued to rise, superimposed on the support of supply side production restrictions. On the other hand, the demand for fuel power generation in the Middle East region has increased in the summer. According to data, Saudi Arabia’s import of fuel oil in June increased by nearly 10 times year-on-year, and the rare high temperature weather has boosted market demand.

Poor demand outlook or slight decrease in plastic prices

Looking into the future, the current crude oil still has upward momentum. Although there is an expectation of demand stimulus and crude oil supply reduction brought about by the global temperature rise in a short time, the momentum of global economic growth continues to decline, dragging down the prospects of energy demand. The leading economic indicator of the American Consultative Chamber of Commerce in June 106.1 declined for 16 consecutive months, the longest decline since the Subprime mortgage crisis in 2008; The continuous decline in the level of GDP in Europe indicates that a technological recession has become a reality.

According to EIA data, gasoline destocking is less than expected, and further attention needs to be paid to the degree of gasoline demand fulfillment. Based on the Federal Reserve’s interest rate resolution and the US GDP in the second quarter, overall, the supply and demand gap may continue to push up oil prices from July to August, but there may be a slowdown. For the supply and demand fundamentals of plastics, there is currently little change. Although the plastic industry has seen an increase in maintenance devices and a shortage of supply, the summer is in the off-season for agricultural films, with limited downstream demand for PE.

At the same time, the downstream of PP is affected by high temperatures and the comprehensive operating rate is insufficient. In addition, the real estate market is still at a bottom, and there are still constraints to the PVC market’s boost. The weak demand has offset the benefits brought by the supply side. In summary, the favorable conditions brought about by low inventory levels are difficult to sustain, and the center of gravity of plastic prices may shift slightly in the future.