Plastics market does not have continuous upside conditions during the year
Column:Industry News Time:2018-05-22
In November, the volume of plastic 1601 contract fell below an important threshold of 8,000 yuan/ton. The demand in the spot market is still in a tepid state.

Crude oil prices are still operating at low levels, and their cost support to domestic chemicals has weakened. Plastics  have rebounded in the short-term, but the increase is expected to be  limited. The market outlook can focus on the short-selling opportunities  after the basis of the contraction. Crude oil continues to be weak, and there will be downward pressure on the market.
        Since  July, crude oil prices have oscillated back down from 60 US  dollars/barrel. After entering November, it has continued to close  overcast. The January contract fell from US$49/barrel to US$40/barrel.
        The  collapse in oil prices caused a sharp decline in Saudi Arabia’s oil  revenues. On November 23, Saudi Arabia stated that it is necessary to  work with OPEC and non-OPEC major oil producers to cope with the current  low oil price issue. Subsequent adjustments may be made by controlling  output quotas, but the interests of oil producing countries are  different. It is unlikely that an agreement to reduce production will eventually be reached.

High profit in production, limited space above plastic

When the crude oil price is above 100 US dollars/barrel, the plastic price is in the range of 10,000-12,000 yuan/ton. At  present, the price of crude oil is almost “waist”, and the spot price  of plastic is still in the range of 8500-9000 yuan/ton. In terms of decline, LLDPE is far from PP.

After  a rough estimation, the current production cost of plastic is about  6,300 yuan/ton, while the ex-factory price is above 8,500 yuan/ton, and  the LLDPE production profit exceeds 2,000 yuan/ton. It  can be said that there are huge profits in the production companies,  while the profitability of traders and downstream demanding companies is  slim, and uneven distribution of profits will seriously restrict the  enthusiasm of downstream consumers and middle traders.

Supply is still loose, spot fell significantly

In  October, the total output of domestic plastic products was 6.77 million  tons, a year-on-year increase of 0.1%; the total output of domestic  plastic film was 1.198 million tons, an increase of 8.4% year-on-year;  the total output of agricultural film was 219,000 tons, an increase of  10.6% over the same period last year. In  contrast, in the peak demand season for agricultural film, the total  output of domestic agricultural film maintains double-digit growth, but  as the plastic film downstream season of plastics gradually ends in late  October, seasonal demand will gradually decline.

Since  October, spot prices have fallen by 200-400 yuan/ton. Petrochemical  regions continue to lower their ex-factory prices, indicating that  petrochemical companies' inventory pressure remains. The  actual demand is still unsatisfactory. The atmosphere in the spot  market is generally high. The high turnover is not satisfactory, and the  demand side is unlikely to improve in the short term.

Market Operation Suggestions

Crude oil prices oscillated downwards. In January, the main contract price fell to a low of around US$40/barrel. Considering  that it is difficult for the Fed to raise interest rates and OPEC to  cut production agreements in mid-December, the probability of crude oil  falling below US$40/barrel in the afternoon is still high. The cost of plastics has declined significantly, and downstream demand is constrained by a poor economic environment.

At  present, the price of plastics has fallen below 8,000 yuan/ton, and  there is a strong basis for repairing the damages, but the spot price is  always an insurmountable Kaner. The  main reason is that LLDPE's production profits are too high, which has  squeezed traders and downstream profit margins, and also restrained  downstream demand. Operationally,  the current rally can participate in the rally for the time being. When  the pending price difference shrinks to less than 500 yuan/ton, a  single entry is more appropriate.