SunSirs: Polyethylene Industry Fundamentals Remain Weak Amid Rising Geopolitical Uncertainties

Entering 2026, amid a complex backdrop of international geopolitical and military events in January, polyethylene prices unexpectedly rose consecutively. Domestic polyethylene prices saw substantial gains during the month. Taking North China's market prices for linear polyethylene and high-pressure products as examples, linear polyethylene prices increased by 450 yuan/ton compared to late December, representing a 7% rise. High-pressure polyethylene prices surged by 900 yuan/ton, an 11% increase. LDPE prices rebounded to early December levels, while HDPE prices climbed to mid-November price points.

Given the persistent weak downward trend in polyethylene prices throughout 2025, market sentiment remained pessimistic. Forecasts for January were generally cautious. The unexpected halt in the decline and subsequent price rebound caught some traders off guard who had prematurely sold off inventory. While the unexpected rally failed to translate into increased profits for these sellers, the positive start to 2026 has instilled a modicum of confidence in market participants regarding improved prospects.

In terms of domestic polyethylene capacity for 2026, it remains a year of concentrated, rapid expansion. Annual new capacity additions are projected at 7.26 million tons, representing a year-on-year increase exceeding 18%. This extraordinary capacity expansion exerts immense pressure on the supply side. Yet, amid slowing global economic growth, rising international trade protectionism impacting China's plastic product exports, and domestic traditional demand growth decelerating against a backdrop of rapidly expanding production capacity, the fundamental contradiction between supply and demand intensifies. This persistent imbalance acts as a “constraint” on polyethylene market dynamics.

Global trade tensions and escalating geopolitical uncertainties, coupled with sudden events supporting crude oil prices, have fueled speculative enthusiasm in the polyethylene market. These unpredictable factors represent one of the positive drivers for polyethylene prices. The close ties between polyethylene downstream industries and daily production and living activities also establish a massive consumption base, serving as a crucial market support. Additionally, the continuous upgrading of downstream product industries, coupled with increasingly personalized and high-end consumer demands, has driven growing demand for novel raw materials. This serves as a productive force propelling the industry toward higher-end and greener products, spurring the upgrading and innovation of domestic polyethylene products. From a macroeconomic perspective, the anticipated year-round accommodative economic environment and the continuation of consumption-stimulating policies ahead of the launch of the 15th Five-Year Plan provide strong favorable support for downstream demand and consumption in 2026.

In summary, the fundamental supply-demand dynamics of the 2026 polyethylene market—characterized by robust supply and weak demand—remain largely unchanged. However, favorable factors for polyethylene market performance include macroeconomic policies, consumption policies, the domestic petrochemical industry's “anti-involution” efforts to phase out outdated, high-energy-consuming capacity, and the cost-boosting impact of volatile international policy environments.

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