Manufacturers have more overhauls, but plastic futures are weak and difficult to change

At present, it is difficult for the PE industry chain to transmit high costs downstream, and plastic futures prices are stagnating. Even if there are more overhauls in recent production companies, plastic futures are difficult to change.

PE supply gradually declines

In March, due to the relatively weak PE price trend relative to raw materials, domestic PE production profits fell sharply. Among them, the linear profit of coal production dropped from 2,900 CNY/ton at the end of February to about 2,000 CNY/ton at present. Affected by this, the production enthusiasm of domestic PE manufacturers has dropped sharply, coupled with the end of the mulch film consumption season, market orders have fallen, and PE manufacturers have entered the maintenance season. Relevant data shows that in April, 10 sets of PE devices of 5 companies in China were planned to be overhauled, involving a production capacity of 2.285 million tons. Among them, Maoming Petrochemical and Yanshan Petrochemical plants will undergo overall overhaul in April, with greater efforts, and the market will enter a phased supply tight situation. At present, the operating load of domestic PE companies is 91.88%, which is the same as the same period last year and is at a normal level. However, with the arrival of the maintenance season, the start-up load of PE companies with domestic storage capacity will decrease, and market supply will decline.

In terms of new production capacity, several domestic PE devices were put into production in the second quarter. Among them, in April, there were 900,000 tons/year of new PE production capacity in China, including Heilongjiang Haiguolong Oil & Petrochemical's 400,000-ton full-density device, Lianyungang Petrochemical's 400,000-ton low-pressure device, and Yangzi Petrochemical's 100,000-ton high-pressure device. At the beginning of the production of newly-added devices, most of them focused on feeding and testing. The short-term actual supply of goods into the market is limited, and there is a high probability that the supply pressure will be released in the third quarter.

In terms of inventory, due to the impact of the epidemic in the first quarter of last year on consumption, the current domestic PE inventory is about 500,000 tons, which is lower than the level of the same period last year. Among them, PE's petrochemical inventory was 389,500 tons, a year-on-year decrease of 15.29%; PE's social inventory was 116,400 tons, a year-on-year decrease of 50,000 tons, a decrease of 30.04%. Both petrochemical inventories and social inventories are low, which means that production companies have little pressure to destock, and downstream companies have less raw materials for production, which play a certain supporting role in PE prices.

Poor cost transmission

With the warming of the weather and the end of spring plowing, the market's demand for mulch film has begun to decline, and the decline in terminal demand has made the demand for LLDPE showing a downward trend. In addition to the seasonal decline in demand, it is currently difficult for downstream PE companies to pass high costs downwards, and production profits are greatly compressed. Therefore, downstream companies are more resistant to high-priced PE and are not willing to purchase. Most of them adopt a buy-and-use strategy. , Which makes the market's demand for PE further weakened. In terms of exports, the resumption of production of multiple overseas installations that were overhauled in the early stage has reduced the overseas market’s dependence on domestic PE. In addition, the previous order is limited. Therefore, domestic PE exports will decline in the fourth quarter.

Based on this, the recent domestic PE downstream start-up load has shown a downward trend. At present, the operating load of packaging film manufacturers has decreased by 5 percentage points compared with the previous period, and the operating load of agricultural film has decreased by 18 percentage points compared with the previous period. Weak consumption restrains PE prices.

To sum up, as consumption enters the off-season, PE demand begins to decline, especially the poor cost transmission of downstream companies, which makes it difficult for the current high-priced PE to be accepted by the market, and the probability of PE price decline increases. However, due to the proactive maintenance of manufacturers and the normal level of inventory, PE supply pressure is relatively small, and the short-term PE price does not have the conditions for a sharp drop. Under this circumstance, we believe that the probability of April plastic futures oscillating downward is relatively high, and we should go short in the long-term.