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Pressure mounting on China's PE market as supply expands

Pressure mounting on China's PE market as supply expands2019.08.23

China's polyethylene (PE) market will continue to face pressure from incremental supply in the second half of 2019, amid overseas capacity additions as well as fewer domestic plant turnarounds.

The total domestic supply in the first half of 2019 increased by around 14% year on year, with domestic output up by 12% and imports up by 17%, ICIS data showed.

China domestic PE supply in H1 2019


The increase in domestic output in the first half of 2019 was mainly attributed to fewer plant turnarounds compared with the year before.

Only Jiutai Energy started up its 250,000 tonne/year high density polyethylene (HDPE)/liner low density polyethylene (LLDPE) plant in May throughout the first six months.

Meanwhile, the loss caused by plant turnarounds in the first half of the year fell by over 400,000 tonnes compared with last year.

Domestic PE output loss in 2018-2019



Additional imports during the first six months were mainly from Saudi Arabia, up by 31% year on year to around 1.92m tonnes.

This was mainly because overseas suppliers allocated or adjusted resources in the worldwide range amid the US-China trade war.

In addition, recycled imports processed with waste plastics increased as well.

More recycled imports flowed into China via the HS code of virgin resins after China announced its restrictions on imports of waste plastics in July 2017, expected to hit around 700,000 tonnes in 2019.

China PE imports by origin in 2018-2019


As for the second half of 2019, Zhong’an Lianhe Coal Chemical’s 350,000 tonne/year HDPE/LLDPE plant has commissioned in August, while Baofeng Energy plans to start up its phase-two 300,000 tonne/year HDPE/LLDPE plant in the second half of the year.

This, coupled with CNOOC and Shell Petrochemical Co and Yan’an Energy which was commissioned last year, might raise domestic output by 5% from the previous year.

Meanwhile, there are fewer plant turnarounds in 2019 compared with the year before. Therefore, domestic PE output will rise by over 8% in 2019 on a year-on-year basis.

On the import side, US-based Sasol commissioned its 420,000 tonne/year low density polyethylene (LDPE) plant in August, but it will not achieve stable operation until the fourth quarter.

US-based EXXON commissioned its 650,000 tonne/year LLDPE plant in July.

Malaysia's Refinery and Petrochemical Integrated Development (RAPID) project and Indonesia's PT CHANDRA ASRI have had trial runs in the third quarter.

Sibur’s ZapSibNeftekhim project - located at Tobolsk in Russia - is also expected to commission at the end of the year.

Overseas capacity expansions in 2019


Although the new capacities overseas will not enter China directly, the impact  hugely undermines sentiment in the domestic Chinese PE market.

Demand, however, remained weak as President Trump threatened to levy 10% import duties on an additional $300bn of imports from China from 1 September, while domestic economic data faltered.

Weak buying interest in China


Reflecting the bearish sentiment, LLDPE prices fell to yuan (CNY) 7,350-7,500/tonne EXWH (ex-warehouse) east China on 21 August, the lowest in the decade, ICIS data showed.

China PE price curve in 2008-2019

Source: ICIS

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