Strong demand for polyolefins continues in 2021

With strong demand, since April 2020, polyolefins have started an 8-month upward path. However, the pace of capacity expansion has not stopped. In the face of a new round of production pressure, can polyolefin prices continue to rise in 2021? Driven by the rebound in crude oil and the recovery in demand, the PP price increase in the second and third quarters of 2021 is expected to continue, exceeding RMB 9,000/ton.

　　A Capacity and output maintain a high growth trend

In 2020, polyolefin prices will show a V-shaped trend from low to high. In the first quarter, negative factors such as the sudden new crown pneumonia epidemic and loose supply expectations were concentrated. In April, as oil prices repaired and demand rebounded, polyolefin prices started to grow. The road to rebound for 8 months.

　　 The Spring Festival of 2021 is coming, and the downstream Spring Festival with sufficient orders such as packaging film and injection molding will not stop, so the demand will not be too bad before the end of February. In March-April, with the release of pressure on the production capacity of new installations, the probability of polyolefin prices will increase. May-July is the peak period of traditional maintenance and is also the peak season for crude oil consumption. Polyolefin prices are strongly supported. Demand relay from August to October, polyolefin prices are expected to rise further. Demand fell after November, and polyolefin supply became loose again.

　　 In 2020, the domestic new PE production capacity will be 3.9 million tons, which is exactly the same as the expectation at the beginning of the year. Except for the delayed commissioning of Bora Petrochemical, other equipment will be put into operation as scheduled. In 2021, it plans to put into production 11 sets of devices with a total production capacity of 5.7 million tons. If full-density capacity is regarded as half linear and half low pressure, compared with 2020, the proportion of low pressure in new capacity in 2021 will still be more than half (56%), high pressure will account for less (12%), and the linear proportion will increase by 29%—32% .

　　 At the beginning of 2020, PP is expected to add 10 sets of new installations totaling 4.75 million tons of production capacity, and the actual 8 sets of installations have been successfully implemented, adding 3.75 million tons of new production capacity. Despite the impact of the epidemic, the commissioning of new devices in 2020 is generally smooth. Most of the first test runs are successful, and the capacity launch rate (actual new capacity/expected new capacity) has reached 80%, the highest in history. In 2021, 11 sets of equipment are expected to be put into operation, with an additional capacity of 4.6 million tons. In addition, it is temporarily impossible to determine whether 10 sets of equipment will be put into operation during the year. They are not included in the statistics. It is estimated that the actual new production capacity for the whole year of 2021 will not be less than 3.6 million tons, bringing in new output 1.68 million tons.

　　 In 2021, the new PE equipment will be put into operation throughout the whole year, and there are uncertainties in multiple sets of equipment, so the new supply pressure is relatively dispersed, while the new PP equipment will be put into operation in the first and fourth quarters.

　　 The monthly output of PE in 2020 will be the highest in the same period in history, and the annual output will reach 20.32 million tons (a year-on-year increase of 13.30%). In terms of subdivided varieties, the output of LD was 2,955,100 tons (a year-on-year increase of 2%), LL production was 8,197,600 tons (a year-on-year increase of 11.34%), and HD production was 9,167,900 tons (a year-on-year increase of 19.00%). It can be seen that although PE production continues to hit new highs, the main increase comes from low pressure and linearity, and high pressure production is almost standing still. In 2021, the launch of new PE production capacity will be concentrated in the first half and the end of the year, and the peak overhaul will occur in the second or third quarter. Therefore, domestic production is expected to increase significantly in the first and fourth quarters (year-on-year growth rate >15%), and a slight increase in the second and third quarters (Year-on-year growth rate is 5%-10%).

　　 The output of PP pellets in 2020 is 25.544 million tons, a year-on-year growth rate of 14.30%. Both the output value and the year-on-year growth rate are the highest in the past five years. Unsurprisingly, the loss of PP overhaul in 2021 will be lower than 2020. Most of the new production capacity will be put into the first half of the year. The output is expected to increase by 3.36 million tons, and the annual output will reach 28.9 million tons, corresponding to a year-on-year growth rate of 13.16%. Since the overhaul peak occurs from April to May, the supply pressure in the second half of the year will be greater than that in the first half of the year. In the fourth quarter, the monthly output may exceed 2.6 million tons.

Fiber material can be said to be one of the keywords in 2020. In April, November, and January 2021, when the demand for medical protection products surged, its production ratio increased significantly, resulting in a reduction in the ratio of wire drawing production to below 26%. This resulted in a tight supply of tradable goods in the market, which eventually led to a significant increase in futures and spot prices.

　　B Overhaul peak is expected in the second and third quarters

　　 The loss of PE overhaul in 2020 is 1.39 million tons, an increase of 15% over 2019, but it is far lower than the 1.85 million tons in 2018. May-July, the peak of traditional overhauls and October-November, when temporary overhauls increased, corresponded to two sharp price increases in 2020. According to the currently announced maintenance plans of the "Two Oils" and some coal chemical companies, the centralized maintenance of 2021 will still occur from May to July. However, due to the excessive maintenance in the fourth quarter of 2020 similar to 2018, it may lead to a recurrence of 2019 in 2021. In 2007, the overall maintenance loss was low and the peak maintenance period was postponed to August-September.

　　 In the past five years, 2020 is the year with the largest loss of PP overhaul, reaching 3.17 million tons in the whole year, an increase of 10% from 2019. The high maintenance loss from February to July 2020 provided strong support for the continuous increase from April to August, and the extremely low maintenance loss from August to September became the main reason for the price drop. The 2021 intensive maintenance period is expected to be from April to May, but since the newly added production capacity reached 920,000 tons in the first quarter, the positive effect of maintenance may be less than expected.

　　 In terms of import and export, the import volume of PE in 2020 will be 18.5304 million tons, an increase of 12.39% year-on-year, and the import dependence rate is 47.70%. Domestic PE demand continued to be better than overseas, and imports increased significantly throughout the second and third quarters. The decrease in August was due to the delay in Iran’s arrival at the port. In the fourth quarter, due to the increase in overhaul of overseas installations, the expansion of the price difference between internal and external disks and the shortage of global containers, the import volume gradually increased cut back. In terms of varieties, low-pressure and linear imports have maintained rapid growth, while high-pressure imports have decreased by 50,000 tons compared with 2019. Saudi Arabia, Iran, the UAE, and South Korea are the main import sources of low pressure and high pressure, while Saudi Arabia, Singapore, Thailand and the UAE are linear main sources of imports.

　　 Although there will be more new overseas PE production capacity in 2021, after the recovery of demand from various countries, my country's PE supply will be diverted. Imports will not increase as much as in 2020. It is conservatively estimated to be about 2 million tons.

　　 The export volume of PE for the whole year of 2020 is 252,500 tons, and the average monthly export volume is about 20,000 tons as in the past five years. Since the export volume is too small compared to the output and the import volume, it has almost no impact on the price.

　　 In 2020, the import volume of homopolymer PP (tariff number 39021000) was 4.5322 million tons, an increase of 29.80% year-on-year. Except for the centralized maintenance period of overseas installations from January to April and December, the year-on-year increase of imports in all other months was more than 20%. In the second quarter, due to the backlog of overseas factories, domestic imports increased more passively. In the third quarter, China became the most demanding region in the world, and the increase in imports turned from passive to active. The top ten import source countries in 2020 have not changed compared to 2019, but the proportion of Southeast Asia has increased from 31% to 36%. Among them, Vietnam, India and Malaysia have increased their PP exports to China due to new installations.

　　 82% of the newly added PP production capacity overseas in 2021 will be concentrated in Asia. However, since half of the installations were put into production in the second half of the year, the demand in other regions has rebounded after the epidemic has recovered, and the import volume in 2021 is conservatively estimated to be 3.6 million tons.

　　In terms of demand, the apparent demand growth rates for PE and PP were 13% and 9%, respectively. In 2021, polyolefin production capacity will continue to expand at a high speed. It is estimated that PE will add 5.7 million tons of new capacity, corresponding to the new output of 3 million tons, and the capacity growth rate will be 24.83%. PP added 4.6 million tons of new production capacity, corresponding to 3.36 million tons of new production, with a capacity growth rate of 16.31%. Affected by the epidemic, overseas polyolefin demand will decline in 2020, and excess production will be transferred to China, resulting in a record increase in imports. After overseas demand resumes in 2021, domestic polyolefin imports will no longer maintain rapid growth. It is expected that domestic PE imports will exceed 20 million tons, while PP imports will drop to 3.96 million tons. In the end, the apparent demand growth rate of PE is greater than that of PP for the sixth consecutive year.

　　C Significant changes in demand structure

A series of changes in the consumption pattern, such as the upgrading of consumption concepts, the promotion of consumption policies, the popularization of environmental protection, and the rise of online sales, have transformed the main consumption areas of polyolefins from film and plastic woven (drawing) made of standard products to non-standard products. Injection molding, fiber and tubing made of standard products. Specifically, in the PE demand, the proportion of packaging film and wire and cable consumption has continued to increase, the proportion of injection molded products has been declining year by year, and the proportion of hollow and pipes has remained stable at 12% for four consecutive years.

　　 In the demand for PP, the consumption proportion of injection moulding related to home appliances and automobiles steadily ranks first, and the consumption proportion of wire drawing continues to decrease due to the decrease in the consumption of plastic woven bags. And this year's hot spot-fiber, consumption accounted for a substantial increase of 5%. In 2021, the pressure on the supply side will be huge, overseas orders will decrease, and domestic demand will become a decisive factor in the price trend of polyolefins. We continue to be optimistic about the demand for packaging film and injection molding.

　　 At the same time, the export volume of plastic products has increased significantly. In 2020, the output of plastic products was 76.03 million tons (a decrease of 7.10% year-on-year). Plastic bans, restrictions on plastics, and the epidemic are the main reasons for the decrease in plastic product output.

　　 The demand for agricultural film is not good. Agricultural film accounts for about 16% of total PE demand, second only to 22% of packaging film, and is usually one of the typical downstream representatives of PE. According to the National Bureau of Statistics, the output of agricultural film in 2020 will be 777,000 tons, a decrease of 31% from 2019. In general, March and April (mulch) and November and December (film) are the peak production seasons, corresponding to a weekly operating rate of more than 50%, and May to August is the off-season of production, and the corresponding weekly operating rate is lower than 30%. However, this traditional law was completely broken in 2020. Affected by the epidemic at the beginning of the year, the agricultural film factory's resumption of work after the Spring Festival was postponed for more than two weeks, and the agricultural film production almost stagnated throughout February. In November, the price of raw material PE rose sharply and severely compressed the profit of agricultural film production. With the addition of winter environmental protection production restrictions, industrial power restrictions and orders reduction, the operating rate from November to December was always at the lowest level in the past six years. As the new thickness of agricultural film is implemented on May 1, 2018, the film used in the spring of 2019 will be replaced in 2021. We estimate that the annual output of agricultural film in 2021 will be about 900,000 tons.

　　 BOPP orders are hot. The current BOPP production capacity is 6.5275 million tons, and only one line will be put into operation in 2020. BOPP belongs to an industry with excess capacity, with a maximum operating rate of 65% over the years. The operating rate of BOPP in 2020 presents the characteristics of low and high afterwards. The operating rate in the first half of the year has always been below 55%, which is the lowest level in history, while the operating rate in the second half of 2019 has exceeded that of 2019, and reached 60% in the fourth quarter. Combined with a high-capacity base and a not-low operating rate, the annual output in 2020 will reach a record high of 4.03 million tons, corresponding to a year-on-year growth rate of 12.49%. The high output is actually supported by high demand, especially the surge in overseas orders in the second half of the year caused some membrane factories to arrange their orders two or three months later. In January 2021, new orders from the membrane factory continue, and it is expected that BOPP production will increase further throughout 2021.

　　 Home appliances and automobiles have rebounded. The consumption volume of home appliances and automobiles is the largest among polyolefin injection molding materials. Below, we look forward to the demand for polyolefin injection molding in 2021 through a review of the home appliance and automobile industries. The epidemic has led to a significant increase in the home time of global residents and a significant increase in the utilization rate of household appliances. This directly reflects the unexpected increase in the output and export data of household appliances such as refrigerators, washing machines and air conditioners in the second half of 2020. In particular, orders for small household appliances are booming, with orders increasing by 3-8 Times are different, and some factory orders in South China will be scheduled after June. In the first half of 2021, due to the ongoing epidemic, the demand for home appliances will remain strong. If the lockdown of the epidemic ends in the second half of the year, the housing economy will recede and the demand for home appliances will fall. It is expected that the demand for polyolefin injection molding will be high and low.

　　 The auto market will be out of the trough in 2020, and auto production has gradually exceeded the same period in 2019 since April. The year-on-year growth rate of auto production and sales for the whole year is better than that of 2019, and the production and sales of new energy vehicles have grown rapidly. As of the end of 2020, the number of new energy vehicles has reached 4.92 million units, an increase of 30% compared to the end of 2019, and an increase of 88% compared to the end of 2018. In 2021, the country will continue to vigorously promote the policy of promoting automobile consumption. The Passenger Federation expects that passenger car sales will increase by 8% year-on-year, and the sales growth rate of other institutions is more than 4%-11%. This has driven the demand for polyolefin injection molding.

　　 In 2020, the spread between LLDPE and PP will generally show a W trend. Compared with the unilateral trend of the past three years, the certainty of transactions has decreased significantly. However, the widening of the spread between LLDEP and PP occurred in the sharply rising market, and the narrowing of the spread occurred more in the oscillating or falling market. Considering that the demand potential of PP is greater than that of PE, the price of PP will still be about 500 points higher than that of LLDPE in 2021.

　　Look again at the price difference between PP and methanol. Since the price of methanol was at a very low level before the fourth quarter of 2020, the price difference between the two remained above 1,500 points for nearly half a year. In November, as the supply of natural gas was limited, the production of gas head units at home and abroad was halted, and the price of methanol rose all the way. , Which brought the price difference between the two back to a reasonable level below 1,000 points. In 2021, the price of methanol will be stronger than PP in the first and fourth quarters, and weaker than PP in the second and third quarters. Therefore, the price difference is expected to be in the form of Λ or M, and more than 2,000 CNY/ton is still a good arbitrage opportunity.