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.

Price Trend
Recent domestic butadiene market consolidation mainly. As of January 23, the price of butadiene was 10,378 yuan per ton, according to business association monitoring.

II. Analysis of Influencing Factors

Products: At present, the domestic butadiene market has improved, downstream traders just need to replenish their warehouses before the festival, northern manufacturers have a better shipment situation, boosting market mentality, middlemen are reluctant to sell at low prices, offer is pushed up, and there is a certain bullish expectation for the next node of the manufacturer’s supply price, but some downstream traders are still cautious, the market turnover is general. Butadiene market in Shandong Province has an obvious mentality of low price and sells sparingly. The downstream market just needs to replenish its warehouse, which boosts the mindset of the industry and keeps the market quotation in order. Eastern China butadiene market atmosphere improved, downstream delivery mentality is still cautious, but the middleman offer is relatively strong, market offer consolidation. Asian closing price of butadiene, FOB Korea average offer $1145-1153 per ton; CFR China average offer $1195-1203 per ton.

Industry chain: styrene-butadiene rubber: demand itself is not good, and natural rubber futures also declined, coupled with the impact of supplier policy, the market of styrene-butadiene rubber shows a weak operation. Although some traders have no intention of upside-down shipment, it is difficult to increase the actual price. Trading is basically near the factory price, and a small number of deliveries. Cis-butadiene rubber: Domestic cis-butadiene rubber market fell. Businessmen offer near the factory price, the atmosphere of inquiry is not good, sporadic buyers buy at a reduced price, and spot turnover is scarce. SBS: The center of gravity of oil glue in domestic SBS market has been lowered, and the dry rubber track has been changed to run smoothly. Oil glue: With the decline of PetroChina’s supply price, businesses are cautious in issuing orders, and the purchase of new orders from downstream shoe material enterprises is weak. At the same time, Sinopec’s F875 pre-sale in South China is stable. In the aspect of dry rubber road reform, the supply price is stable, and the supplier controls the supply, the amount of business orders is limited, and the atmosphere of downstream stock entering the market is insufficient.

3. Future Market Forecast

On the positive side, the external price is firm; the supply side of butadiene is tight; on the negative side, the downstream synthetic rubber market is insufficient to follow up. Business Association butadiene analysts expect that the short-term domestic butadiene market will maintain a consolidation trend, focusing on market turnover.

Commodity Name: Acetone

Market Price (Jan. 22, East China):3700 yuan/ton

Analysis Points: Domestic acetone market offer increased. At present, port inventory pressure is not big, TRADERS’confidence is increasing, cargo holders’ mentality has been boosted, tender sentiment is obvious, downstream terminal enterprises’purchasing follow-up is still acceptable, second-hand merchants’ inquiry atmosphere is strong, the volume of real transactions is general, business associations expect that the mainstream negotiation area of East China market is 3700 yuan/ton, the mainstream negotiation area of Yanshan and Shandong markets is 3700 yuan/ton, and that of South China market is 3700 yuan/ton. The bargaining price is around 3800 yuan/ton.

According to Dow Jones, the head of Schlumberger, the world’s largest oil service company, said on Friday that shale oil production growth in the United States may slow this year as drillers have cut budgets to cope with falling oil prices.

Paal Kibsgaard, chief executive of Schlumberger, said in a conference call with investors that the recent drop in oil prices had prompted global oil producers to adopt a more conservative approach, especially in the United States.

Kibsgaard said that Schlumberger’s client, U.S. shale oil drillers, may have a slightly lower budget in 2019, especially at the beginning of the year. This means that the momentum of rapid growth in U.S. oil production will slow down in 2018.

Kibsgaard told the company’s fourth-quarter earnings conference by telephone: “The growth of shale oil production in the United States is likely to be more moderate in the next few years.”

Due to weak oil prices, some oil producers have begun to reduce their drilling plans for 2019. Oil prices in the United States have fallen by more than 30% in recent months. Although oil prices have rebounded in the new year, they are still at a low level, which has forced many shale oil producers to cut spending.

In public statements and documents, Chesapeake Energy, Diamondback Energy, Parsley Energy and Centennial Resources Development said they either planned to reduce the number of drilling platforms in 2019 or recently reduced production plans.

So far, however, production cuts by U.S. shale producers are still relatively modest, and this year is expected to push U.S. crude oil production to a record high, but the growth rate will not be as fast as 2018. The U.S. Energy Intelligence Agency (EIA) expects U.S. oil production to increase from an average of 10.9 million barrels a day last year to 12.1 million barrels a day in 2019.

As a result, Schlumberger said it would spend $1.5 billion to $1.7 billion in 2019, down from $2.2 billion in 2018. Kibsgaard said this was mainly due to a slowdown in oil and gas drilling in the United States.

The closing price of p-xylene in Europe rose by $10 per ton on January 18, closing at $965-967 per ton FOB Rotterdam.

On Jan. 18, the closing price of p-xylene in Asia increased by $10 per ton. The closing price was $1050-1052 per ton FOB in Korea and $1070-1072 per ton CFR in China.

By the end of January 18, Butadiene FOB Rotterdam spot was 848-852 US dollars/ton, down 25 US dollars/ton; Butadiene FD spot in Northwest Europe was 808-812 Euro/ton, down 30 Euro/ton.

China’s crude oil production has fallen three times in a row.

Influenced by resource endowment conditions, poor economic benefits of high-cost resources under low oil prices and insufficient upstream investment, China’s crude oil output in 2018 is expected to be 189 million tons, down 1.3% year on year, a decrease of 1.9 percentage points over the previous year. For the first time, the external dependence of crude oil has broken through 70%, rising to 70.9%, an increase of 2.5 percentage points over the previous year.

On January 16, the Institute of Economic and Technological Research of China Petroleum Group released the above data at the press conference of the “Development Report of the Domestic and Foreign Oil and Gas Industry 2018″ (hereinafter referred to as the “Report”).

Since the domestic crude oil output fell below 200 million tons in 2016, it has been declining for three consecutive years. In 2016 and 2017, domestic crude oil production was 199 million tons and 191 million tons respectively.

Due to the decline of crude oil production and the rapid growth of refining capacity, the net import of domestic crude oil continued to grow in 2018, with a net import of 460 million tons, an increase of 10.9% over the previous year, an increase of 1.1 percentage points over the previous year.

According to the report, domestic crude oil production is expected to reach 190 million tons in 2019, an increase of 0.02% over the same period last year.

In addition to the gradual warming of international oil prices, policy-driven is also one of the reasons for China’s crude oil production growth. In 2018, the State Council put forward in “Some Opinions on Promoting the Coordination and Stable Development of Natural Gas”, that oil and gas enterprises should increase the investment of domestic exploration and development funds and workload in an all-round way to ensure the completion of the objectives and tasks of national planning and deployment.

At the end of last year, new oil and gas discoveries were announced in Xinjiang Oilfield and Southwest Oilfield of PetroChina. Among them, the crude oil production plan of Mahu Oil Area in Xinjiang Oilfield has increased from 940,000 tons in 2018 to 3,000,000 tons in 2021, and will reach 5 million tons in 2025 with stable production for six years.

On Dec. 15, 2018, Shatan Well 1 in Shawan Sag, Junggar Basin, Xinjiang Oilfield, obtained high-yield industrial oil flow. According to Interface News, the daily oil production of 2.5 mm nozzle is stable at more than 20 cubic meters.

PetroChina indicated that the Shawan depression is expected to become another area of increasing reserves and production scale after the Mahu depression.

On December 16 last year, PetroChina Southwest Oil and Gas Field Company announced that Yongxuan 1 well, located in Zhouxiang, Janyang City, Sichuan Province, had drilled high-yielding gas at the bottom of volcanic rocks. At present, the natural preliminary test of natural gas production has reached 225,000 cubic meters per day, which indicates that a new atmospheric region will emerge in this area.

In addition, PetroChina’s dependence on foreign countries is approaching 70%. According to the report, the apparent consumption of domestic oil in 2018 topped 600 million tons, reaching 625 million tons, an increase of 7%. The net import of petroleum in the whole year was about 440 million tons, an increase of 11% over the previous year, and the degree of dependence on foreign oil reached 69.8%.

In view of the difference between crude oil external dependence and petroleum external dependence, Wang Lining, Director Engineer of the Institute of Petroleum Market Research, Institute of Economic and Technological Research, China Petroleum Group, explained that the former is the import of domestic crude oil divided by the total consumption of crude oil (i.e., crude oil import plus domestic crude oil output), and the latter is the import of domestic petroleum products divided by the total consumption of petroleum (i.e., crude oil Net oil import.

Petroleum refers to the general term of oil, including crude oil and various products in a broad sense.

The report points out that the degree of oil dependence is related to the security of energy supply, but it is not causal. The safety of oil supply is generally affected by the stability of import sources, the safety of corridors and the level of reserves. At present, China has established mutually beneficial and win-win cooperation with most resource countries. In a long period of time, it is unlikely that China will encounter the embargo imposed by resource countries.

“As long as we increase domestic oil and gas exploration and development, ensure the diversification of import sources and channels, improve reserve capacity and safeguard channel safety, high external dependence will not necessarily lead to supply crisis.” According to the report.

In 2018, domestic demand and supply of refined oil maintained a low growth rate. The report estimates that crude oil processing will break through 600 million tons for the first time in 2018, reaching 606 million tons, an increase of 6.7% over the same period of last year, and the annual output of refined oil will reach 365 million tons, an increase of 1.8% over the same period of last year. The net export volume of refined oil will break through the 40 million tons mark for the first time, reaching 40.9 million tons, an increase of 12.4% over the same period last year.

On January 16, the closing price of phenol Market in Europe was stable, with the latest offer of Euro 1026-1030 per ton.

In January 16th, the U.S. Gulf phenol market closed stable, the latest offer is $1088-1108 / ton, FOB us gulf.