As soon as 2019, the polyethylene (PE) market has fallen into a slump. Last week, HDPE market reference price was 9783 yuan (ton price, the same below), down 1.01% from the beginning of the month; LDPE market reference price was 9062.5 yuan, down 0.82% from the beginning of the month.

Industry insiders generally believe that in the expectation of a slowdown in macroeconomic growth and a looser supply-demand relationship for PE, the trend of PE market this year is not optimistic.

Weak support for oil prices

There is a strong positive correlation between PE price trend and international oil price. At present, the global macroeconomic expectations are generally low, the international crude oil market is vulnerable to shocks, making PE cost support weak.

“This year, people in the industry generally hold a more pessimistic attitude towards the global macro-economy. With the slowdown of economic growth in the United States, the expectation of economic downturn continues to magnify, and the economic slowdown in emerging countries has become a fact and is difficult to change. In general, Zhang Xue, an information analyst, believes that this year’s macroeconomic level is difficult to inject strong energy into the international oil market.

Although OPEC reached a new round of output reduction agreement in December 2018, the Federal Reserve recently lowered its GDP growth expectations for this year and next, which means that the Fed’s expectations of future slowdown in the U.S. economy are further enhanced. As the largest economy in Asia and the second largest economy in the world, China is also facing increasing trade uncertainty in 2019. Ministry of Commerce officials said: “At present, China’s foreign trade development is facing an increase in uncertainties and instability, and the rise of unilateralism and trade protectionism.” According to the General Administration of Customs, China’s exports fell by 4.4% in December from a year earlier, the biggest decline since December 2016, and imports by 7.6% from a year earlier, the biggest decline since July 2016, both of which are far below the economists’median estimate.

Under the combined effect of various factors, the international crude oil market will continue to oversupply in 2019, and the price is difficult to effectively boost. Due to the conduction effect, the cost support of PE market is weakened.

New capacity is pouring in

“2019 is a year of substantial growth in PE production capacity. On the one hand, there will be a large number of new capacity to join, on the other hand, due to the maintenance loss of capacity is relatively reduced, the market supply will be very relaxed. Liaoning polyolefin dealer Zhang Hao said.

According to Zhang Hao, this year, it is expected that more than 2 million tons of PE capacity will be added to Jiutai Energy, Hengli Petrochemical, Zhejiang Petrochemical, Qinghai Damei, Zhongan United and Ningxia Baofeng. The capacity growth rate is about 12%, which is much higher than 6.77% in 2018.

While a large number of new capacity has been put into the market, the overhaul devices are relatively reduced. According to Zhang Hao, 2019 is a “small year” for the maintenance of PE plant. The output loss is only about 600,000 tons, which is more than 60% less than 2018. After offsetting the new capacity, PE market will usher in more than 1 million tons of new output this year.

“Not only that, the world PE market will also have a large number of new capacity to join.” Zhang Hao said that foreign enterprises are keen on ethylene pyrolysis project in recent years because of its low cost and simple process. In 2019, Taipei Plastics, Sasol, Basel and other enterprises plan to produce more than 5 million tons per year of PE capacity. For a long time, PE import dependence in China is high. Foreign PE production capacity growth has a significant impact on domestic market prices.

Demand growth is expected to slow down

At present, with the slowdown of China’s economic growth, PE as a major petrochemical commodity, demand is affected. In addition, the negative impact of Sino-US trade frictions on China’s plastic exports will also be reflected this year. The demand of PE market will remain weak in a large probability.

According to Zhang Xue, PE is the most widely used variety of general synthetic resins. The downstream products are mostly disposable consumer goods, mainly used in daily life and agriculture, and have a high degree of correlation with the economic situation. As the global economic outlook is not good, the growth rate of PE demand in the consumer sector is bound to slow down.

According to Fangzheng medium-term data, the correlation between GDP growth rate and plastic product output growth rate is 89%. According to the economic data released recently by the National Bureau of Statistics in 2018, domestic GDP in 2018 exceeded 90 trillion yuan, an increase of nearly 8 trillion yuan over the previous year, an increase of 6.6%, a new low since 1990. With the negative impact of Sino-US trade frictions, domestic plastic product consumption and export growth may decline to a certain extent this year, and the macro demand for PE is bound to weaken.

Overall, PE production capacity at home and abroad has expanded dramatically this year, while demand growth is expected to be difficult to keep pace with. Loose supply will become the main tone of the market, and then suppress the weak PE market.