In the First Quarter, the Overall Supply and Demand Side of Plastics was Weak, and the Fluctuation Range Narrowed
Abstract: In the first quarter, the main plastic 2405 contract showed a range-based fluctuation trend, the fluctuation range continued to narrow, and the overall price center of gravity shifted upward.
In the first quarter, the overall performance of the supply and demand side of plastics was weak, and the upward momentum given by itself was limited, while the continuous rise in international oil prices provided a strong cost boost, during which the price of Brent crude oil rose by nearly 20%. At present, international crude oil prices are still very strong, and the market is quite concerned about whether plastic prices can follow a wave of substantial increases.
Oil prices continued to be strong
Looking back at the trend of Brent oil prices since the beginning of the year, it can be found that the continued tension and worsening of the geopolitical crisis and the announcement of OPEC+ to extend voluntary production cuts have driven Brent oil prices to continue to rise.
The current geopolitical crisis is hard to see signs of easing, and the Russia-Ukraine conflict, the Palestinian-Israeli conflict and the struggle between the respective support forces behind the two sides have turned white-hot, and it is expected that the crude oil market will continue to suffer from highly tense geopolitical risk disturbances in the second quarter. As for crude oil fundamentals, the overall trend remains good, with the continuous spread between Brent crude oil and WTI crude oil continuing to widen, and global crude oil maintaining a low inventory pattern. Based on the continued disruption of the geopolitical crisis and the expectation of destocking fundamentals, crude oil prices may continue to remain strong in the second quarter.
PE maintenance season is coming
Since there is no plan for new PE units to be put into operation in the first half of the year, the market is more concerned about the load changes of existing PE units. Since the beginning of the year, international crude oil prices have continued to rise and the increase is significantly higher than the price increase of PE, and the profit of PE oil process has continued to deteriorate, from a small profit to the latest profit loss of about 900 yuan/ton. Oil profits continue to be sluggish, the overall load of PE units in the first quarter remained at 80%-83%, which is at a historical low in recent years, and overseas PE units are also facing poor profits resulting in dissatisfied loads, and PE imports are not expected to increase much.
In the second quarter, the domestic conventional stock of PE units entered the maintenance season and the profit of oil production goods may continue to deteriorate, and the operating load of PE units is likely to continue to decline. According to preliminary estimates, the supply of domestic PE in the second quarter is expected to decrease by 4% quarter-on-quarter, and only 0.2% more than the supply in the second quarter of the same period in 2023, and the domestic supply will shrink significantly in the second quarter.
Demand resilience brings momentum to destocking
After the Spring Festival, the overall pace of PE downstream resumption of work is slow. As of April 5, the weighted operating rate of PE downstream was 45.5%, which basically returned to the normal operation level of recent years, but the overall start of construction was still low. Considering that disposable consumer goods account for more than 70% of PE demand, which is resilient, we believe that we should not be pessimistic about PE demand. At present, under the background of low raw material inventory, improved orders and high finished product inventory of downstream product factories, the demand for replenishment is expected to be achieved. In addition, the marginal improvement of export expectations, the global manufacturing PMI data from January to March this year were 50, 50.3 and 50.6, and the global economy has a recovery trend. Overall, PE demand is resilient and expected to improve, coupled with the contraction of domestic supply, PE is expected to continue to destock and improve the balance sheet in the second quarter.
On the whole, the international crude oil prices in the second quarter are expected to continue to remain strong, giving support to the cost side of plastics, and the fundamentals of plastics themselves are expected to improve, the domestic equipment maintenance in the second quarter increases, the demand resilience is strong and there are expectations for improvement from domestic demand and exports, the plastic supply and demand balance sheet continues to improve, and the overall price center of gravity of the new main plastics 2409 contract is expected to rise to 8600-8800 yuan/ton.