SunSirs: Geopolitical Dominance, Strong Support from PE Cost Side

Recently, there has been a significant increase in domestic PE prices, led by LDPE. It is the result of international geopolitical conflicts, rising costs, improvement in domestic supply and demand margins, and market sentiment resonance. The core driving force is the Middle East situation pushing up oil prices, import disturbances, and downstream resumption of work and replenishment.

According to the monitoring of the commodity market analysis system of SunSirs, the average price of LLDPE (7042) was 6,605 RMB/ton on February 27th and 7,125 RMB/ton on March 3rd, an increase of 7.87%. LDPE (2426H) had an average price of 8,683 RMB/ton on February 27th and 9,450 RMB/ton on March 3rd, an increase of 8.83%. The average price of HDPE (5000S) on February 27th was 7,312 RMB/ton, and on March 3rd it was 7,637 RMB/ton, an increase of 4.44%.

1. International geopolitics and cost side

Crude oil prices skyrocket, with strong support from the cost side

In early March, the situation in the Middle East escalated, Iran related conflicts intensified, and shipping risks in the Strait of Hormuz increased. Recently, international crude oil prices have surged significantly, directly driving up PE spot prices.

Import sources and logistics are obstructed

Iran is an important source of PE imports for China, with LDPE accounting for 14%, HDPE accounting for 11%, and LLDPE accounting for 3%. LDPE has the highest dependence on imports. The conflict has led to a shortage of Iranian goods and delayed shipping schedules. Oil tankers are forced to detour around the Cape of Good Hope, leading to a significant increase in import costs and tight spot supply.

2. Domestic supply side

Concentrated short-term supply reduction during device maintenance

In March, there was no new production capacity put into operation domestically, but there were more maintenance facilities: Zhejiang Petrochemical, Lanzhou Petrochemical, Zhongying Petrochemical, Zhong'an Petrochemical and other sets of facilities are scheduled for maintenance in March, but the capacity utilization rate has decreased compared to the previous month, and the supply margin has tightened.

High inventory but accelerated destocking

After the end of February, the inventory was high, but on March 3, after the RMBxiao (Filled round balls made of glutinous rice-flour for Lantern Festival) Festival, the downstream resumed work faster, the inventory reduction was accelerated, and the market shifted from "digesting inventory" to "replenishing inventory" to support prices.

3. Demand side

The peak season for downstream resumption of work and agricultural film production has begun

After the RMBxiao (Filled round balls made of glutinous rice-flour for Lantern Festival) Festival, downstream projects such as packaging, injection molding and pipe materials resumed in an all-round way, and the operating rate rose rapidly; In March, we entered the peak season for traditional agricultural film demand, with an increase in the purchase of plastic film and greenhouse film, which resonated with the demand for replenishment and storage.

4. Market sentiment and futures driven

On March 2-3, the main LLDPE contract of Dashang Exchange hit the daily limit up for two consecutive days, driving up spot prices; Traders have a strong bullish sentiment, being reluctant to sell and pushing up prices, further pushing up prices.

Short term PE prices are still relatively strong, but attention should be paid to whether the situation in the Middle East has eased and whether oil prices can continue; The speed of domestic inventory turnover and the realization of downstream actual demand; Supply recovery status after maintenance is completed. If geopolitical conflicts persist and demand continues to rebound, prices are expected to remain strong; If oil prices fall back and demand falls short of expectations, the increase may narrow.

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