Chinese players: Local inventories pressure might ease entering maintenance season

The PE market in China dropped sharply since player resumed from the long Lunar New Year holiday that took place during late February this year. This is a result of bloated inventories levels in the local ground while demand is not recovering soon enough.

According to data combined by CommoPlast, total PP and PE inventories at major domestic producers’ warehouses rose approximate 54% compared to before the holiday, reaching the highest level since 2016. However, this is a common event that takes place after every Lunar New Year. The difference between each year is whether demand picks up quick and strong enough to absorb the accumulated inventories.

Buying interest has, however, been sluggish and compared to the beginning of February 2018, local PE prices have fallen an approximate $110/ton for HDPE film and $60/ton for LLDPE film. At the moment, HDPE film is traded in the range CNY10,200-10,900/ton ($1377-1472/ton without VAT), EXW China, cash equivalent while LLDPE film at CNY9100-9500/ton ($1228-1283/ton without VAT).

“Our customers are unable to restore regular operation rate due to lacking manpower while except for agricultural film, other end products are not seeing any up-tick in demand,” a trader commented.

Tightened bank credit in the first quarter of 2018 also plays an important role in restricting demand recovery. In fact, many are not getting loan approval or loan being released in batches, causing an unhealthy cash-flow condition.

Entering the second quarter of the year, domestic inventories might reduce quicker as a number of major maintenance shutdown taking places from April to July are expected to take a considerable quantity of production out of the market.       

Following table is the detailed shutdown schedule. Yet, whether the domestic market could rebound due to these production loses, it remains questionable. “International trade environment is very unfavourable while the new environmental regulations in local market are keeping operating costs high. Market might improve slightly as suppliers face less inventories pressure, however, we are not expecting any drastic up-swing in the near term,” a buyer in the country added.

From April to July 2018, China market is expected to loss more than 470,000 tons of PE productions due to schedule shutdown. Total PP and PE inventories at major domestic producers’ warehouses currently stand at 930,000 tons.