How much further would Chinese HDPE bull run?

Import HDPE market in Asia rebounded from a prolonged down-trend during early July this year, and since then offers for HDPE film to China has constantly been traded on the same par or even higher than to Vietnam, which is very much against the traditional trading norm. On an average, import HDPE film to China is about $20/ton above Vietnam market since the second week of August, CommoPlast data showed.

The main factor causing such development is the improved buying appetite for prime grade cargoes among Chinese buyers after Chinese government announced plan to ban import of plastic scrap that eventually shackled the country’s recycle industry.

China imported about 7.3 million tons of plastics scrap in 2016, of which polyethylene made up 2.53 million tons, according to China Custom Department. The figure might fall to 1.7 million tons in 2017, industry experts said. Chinese buyers are seeking alternative source of materials to replace recycle grade – which explain to why overseas polyethylene producers are getting excited about the ban.

While demand for virgin HDPE film in China pick up, Iranian supply face huge disruption due to a major gas leak that affect most PE plants in the country. In recent week, there has been market talk that approximate 70,000-80,000 tons of Iranian HDPE cargoes faced cancelation due to prolonged shipment delay and changes in price setting. “This is adding more upward pressure on the market as buyers need to fill in the supply gap,” a Chinese trader informed.

On the first trading day of this week, there has not been any import HDPE film offers to China below the $1300/ton threshold observed with a good number of deals for Thailand cargoes concluded in the range $1330-1340/ton, CFR China last week, while Vietnam buyers are refusing prices nearing the $1250/ton mark. The biggest concern at the moment is that how much further would Chinese HDPE bull rally?

Regional players are speculating that this trend might slow down only by late quarter 1 next year pointing to several factors. Firstly, demand from packaging sector normally slow down after the long Chinese New Year break, which take place during late February 2018 this time. Secondly, Iranian plants are gradually recovering from the gas leak issues, and might be able to achieve regular production rate at the end of this year. And thirdly, several new PE plants in USA just started commercial production and might be able to export by first quarter next year, which would ease the current tightness to a certain extent.