Polyolefin Weekly Report: Downstream Demand in Off-Season, Supply Pressure Continues

Market News and Important Data

In terms of price and basis, the closing price of the L main contract is 6486 yuan/ton (-48), the closing price of the PP main contract is 6129 yuan/ton (-48), LL North China spot is 6500 yuan/ton (-30), LL East China spot is 6580 yuan/ton (-120), PP East China spot is 6200 yuan/ton (-30), LL North China basis is 14 yuan/ton (+18), LL East China basis is 94 yuan/ton (-72), PP East China basis is 71 yuan/ton (+18).

In terms of upstream supply, the operating rate of PE is 84.1% (+0.1%), and the operating rate of PP is 78.3% (+0.7%).

In terms of production profit, the production profit of PE from oil is 183.5 yuan/ton (-105.5), the production profit of PP from oil is -436.5 yuan/ton (-105.5), and the production profit of PP from PDH is -892.6 yuan/ton (-88.9).

Regarding imports and exports, the import profit for LL is 4.6 yuan/ton (+5.2), the import profit for PP is -295.5 yuan/ton (+5.0), and the export profit for PP is -14.0 USD/ton (-0.6).

In terms of downstream demand, the operating rate of PE downstream agricultural film is 46.4% (-1.7%), the operating rate of PE downstream packaging film is 49.6% (-0.6%), the operating rate of PP downstream woven bags is 44.1% (+0.0%), and the operating rate of PP downstream BOPP film is 62.9% (+0.3%).

Market Analysis

In terms of PE, the overall maintenance scale of PE on the supply side in December is not high, and the planned maintenance volume in the later period is also relatively limited. PE operating rate is expected to continue to rise, and BASF's new 500,000-ton FDPE unit is expected to be put into operation by the end of the year, resulting in continued pressure from ample supply. On the demand side, the overall operating rate of PE downstream continues to decline, with agricultural film entering the off-season and shed film demand gradually falling back, while the off-season demand for mulch film is insufficiently driven, and the agricultural film demand is expected to continue to weaken later. The operating rate of packaging film has slightly declined month-on-month, weakening demand support, and there is still a lack of substantial improvement expected in the PE demand side. Looking at the inventory side, although PE social inventory showed reduction during the week, the absolute inventory levels of LL and LD remain high. Under the current pattern of increased supply and weak demand, PE inventory pressure is expected to remain significant. On the cost side, oil price trends are weak, providing relatively limited support for oil-based costs. Overall, with the arrival of the demand off-season coupled with the continuous increase in output from existing units on the supply side, spot prices continue to fall, market sentiment is relatively pessimistic, and the short-term fundamentals are unlikely to receive substantial stimulation.

In terms of PP, on the supply side, companies that had previously undergone maintenance are gradually restarting, with planned maintenance volume relatively low, and the intensity of maintenance weakening, which may lead to a slight rebound in supply volume later. PP supply is expected to remain high, while the price difference between PP and propylene has compressed to a low level. PDH profits have declined to their lowest point this year, yet there is still no significant indication of marginal facility shutdowns due to profit pressure. On the demand side, downstream demand for BOPP and woven plastics is relatively stable, providing some support for demand. However, the continuous weakening of spot prices makes downstream restocking cautious, focusing on essential inventory. PP demand is still insufficiently supported; upstream is mainly actively reducing inventory, but intermediary inventory consumption is limited, and overall inventory levels remain high. On the cost side, international oil prices are fluctuating weakly, while recent external propane prices are relatively strong, enhancing the cost support for PDH production. Currently, the supply side has not shown significant reductions in maintenance volume, upstream production cuts are lacking, and demand is weak, leading to continued weak basis fluctuations. Short-term rebound drivers are limited, and attention should continue to be paid to cost-side disturbances and changes in supply-side maintenance.

Unilateral: LLDPE is cautiously bearish; PP is on hold, mainly with short-term weak fluctuations. Intertemporal: None.

Cross-commodity: Short L-PP spread at highs.

Macroeconomic policy, crude oil price fluctuations, propane price fluctuations; upstream facilities production cuts.