Is China’s polyetylene market nearing the bottom?

Players in China are beginning to speculate that the country’s PE market may be nearing the bottom of its ongoing downward trend following seven consecutive weeks of declining prices as per ChemOrbis. Several scheduled shutdowns in China as well as the recent increases in upstream costs are cited as the main factors suggesting that the current downward trend may be nearing its end. According to ChemOrbis Price Index, import LDPE and HDPE film prices on a CFR China basis have been moving lower for the past 7 consecutive weeks while import LLDPE film prices held steady over the past week after recording decreases for the past eleven consecutive weeks. Since the beginning of the recent declining trend, LLDPE film prices have lost a cumulative amount of US$140-170/ton while LDPE film prices have dropped US$185-200/ton and HDPE film prices have declined by US$90-100/ton. These decreasing trends began to slow down this week, with LLDPE film prices seeing no changes week-on-week while HDPE film prices were stable to US$20/ton lower and LDPE film prices were down US$20/ton week-on-week. Players commented that they do not believe that prices have any further room to fall over the near term as overseas HDPE and LLDPE producers are already operating quite close to or in some cases even below their theoretical production costs based on spot ethylene prices. Inside China, locally-held LLDPE film prices were stable to CNY50/ton (US$8/ton) lower over the past week while locally-held LDPE and HDPE film slipped by CNY100-200/ton (US$15-31/ton) on the week. A few domestic producers implemented price increases of CNY100-250/ton (US$15-39/ton) towards the end of this week after concluding their June sales quotas, although these producers also changed their pricing policy such that they are once again willing to give retroactive discounts to their customers should the market continue to move lower. Domestic PE supplies are expected to tighten in the month ahead as Baotou Shenhua plans to conduct a 45 day shutdown at its 300,000 tpa HDPE/LLDPE plant starting on July 5 while Dushanzi Petrochemical is planning to shut down its 120,000 tpa LDPE plant and its 140,000 tpa LLDPE plant in H2-July. In addition, both Shanghai Petrochemical and Yanshan Petrochemical are said to be considering maintenance shutdowns at their plants in late July or August. Shanghai Petrochemical has a capacity of 190,000 tpa of LDPE and 250,000 tpa of HDPE while Yanshan has a capacity of 380,000 tpa for LDPE film and 140,000 tpa of HDPE film. In addition to tightening local supplies, the recent up-tick in upstream costs has also lent support to players predicting an imminent end to the ongoing downward trend in China’s PE market. Crude oil futures on the NYMEX have gained US$4.16/barrel since the start of the week to move back towards the US$95/barrel, after prices threatened to fall below the US$90/barrel mark earlier this week. Spot naphtha prices on a CFR Japan basis have also gained around US$45-50/ton over the past few days after sinking to their lowest level since the end of January at the start of the week. Spot ethylene prices have also begun to move higher, rising around US$5-10/ton since the start of the week to reach their highest levels since mid-June.