As we move deeper into the fourth quarter of the year, signs of a slowdown in the production of polyethylene (PE) products have been noticeable. The agricultural films, particularly in northern China, have entered a period of decreased demand as the agricultural production season winds down. Conversely, there has been an uptick in demand in the southern regions, creating a regional disparity that has led to a stabilization in the agricultural film market, albeit with a slight decline in overall demand. In contrast, other PE product categories have maintained a relatively steady trajectory; however, with dropping temperatures, the flow of new orders has also slowed, and companies have adopted a cautious stance, leading to narrow fluctuations in operation rates and a trend toward on-demand raw material procurement.
The overall performance of PE down-stream markets is characterized by a general state of oscillating decline. Compared to last year, there has been a notable reduction in several categories, especially in the PE drawing sector. This can be attributed to strong upstream raw material prices combined with a limited influx of new orders. Competitive pressure in the market is evident, which has constrained the ability of companies to raise prices for their products. Consequently, many firms have opted to reduce their production load, adopting a strategy of cautious purchasing based on prevailing market conditions. Overall, the operational levels of many PE manufacturers have experienced a year-on-year decrease.
In the context of various PE products, the demand for greenhouse films has moderated from earlier in the quarter, with some companies reporting a slight dip in operations. Agricultural film demand is typically subdued during this time, resulting in scant orders across the board. A few companies have begun to accumulate tender orders for agricultural film, leading to marginal improvements in their production rates, while others have largely ceased production or operated intermittently. There has been a slight increase in operational rates in the manufacturing of PE pipes, particularly in East and South China where certain project timelines are accelerating. However, factories in the northern regions generally reported slight decreases in operational capacity.
When examining the PE packaging film segment, larger firms have been actively fulfilling orders and continue to maintain a steady level of demand at the consumer end. Yet, smaller enterprises have limited demand support, leading to marginally lower operational rates as the trading environment remains weak. Additionally, PE hollow products have seen a downturn due to sluggish demand, leading to diminished factory operations. In the PE drawing sector, larger factories reportedly function at about 40% capacity, while smaller firms have decreased their production rates to about 30% amid a lack of sustained new orders.
The price of raw materials has shown a tendency towards strong oscillations, resulting in a cautious approach to procurement by terminal manufacturers. Recently, the domestic polyethylene market has experienced rising prices, driven in part by gains in futures markets, which in turn has fostered an active trading atmosphere in the spot market. However, downstream inquiries are generally characterized by cautious responses, with many businesses wary about committing to large purchases given the volatile market conditions.
With regards to the price differentials between domestic and foreign markets, the LDPE (Low-Density Polyethylene) import window has remained consistently favorable. Meanwhile, resources from other categories are also anticipated to open up for importation soon. The market has shown a tendency towards caution, as participants are closely monitoring new production capacities coming online domestically as well as expected increases in overseas resources. This has given rise to a cautious trading environment, which will demand focus on the supply side in the near future.
Despite observing strong fluctuations in raw material prices, the diminished demand for certain products has translated into a slight drop in operational activity. Looking ahead, there is a prevalent sense of bearish sentiment regarding future procurement activities among many terminal users, who seem to favor a reactive purchasing strategy that responds closely to immediate needs.
Statistics from the firms surveyed reveal that nearly 47.37% of agricultural film companies maintain a steady outlook on price trends, believing the peak season for greenhouse films has not fully passed, and consequently, there is still support for raw material pricing due to sustained demand. However, 33.33% of these firms have expressed a bearish perspective, citing limited advancements in downstream product demand and demonstrating a general hesitance towards aggressive procurement, preferring to purchase conservatively when prices dip. Only a small fraction, about 19.3%, are currently optimistic, citing that rising crude oil prices may allow for slight upward movements in polyethylene prices.
In the short term, the announcement of increased maintenance schedules is resulting in tighter overall supplies in the market, albeit with low downside pressure. On a macroeconomic scale, fundamentals seem stable as the demand landscape remains largely constant. In the immediate future, the domestic polyethylene market is expected to show strong oscillation trends.
However, in the middle to long term, the commencement of operations at recently constructed plants will play a key role in adjusting supply dynamics. As facilities that have previously undergone maintenance start to come back online, and with a limited number of planned shutdowns, increases in production volumes are anticipated. Towards the end of the year, it is also common practice for suppliers to adopt destocking measures, which may affect availability.
Despite some uncertainty clouding the market, an uptick in downstream demand remains plausible as the year draws to a close. This could lend some support to pricing, although the medium to long-term outlook for the polyethylene market seems inclined towards a weaker trend altogether.
In terms of product output, the operational rates for PE downstream are expected to dip by approximately 0.66%. Reductions in orders, particularly for polyethylene films, indicate weakened demand and cautious procurement practices among firms. The anticipated drop in PE pipe factory orders, especially in northern regions, reflects a growing attitude of risk aversion as businesses aim to lower raw material stocks while boosting liquidity to navigate the seasonal downturn. Operational rates for hollow products are also likely to decline slightly due to insufficient new orders.
In this climate, industry intelligence entities such as Rongzhong have introduced a comprehensive polyethylene downstream weekly update. This publication tools includes detailed analytics on operational rates, raw material inventory days, order durations, and profit margins in the downstream sector, enriching market participants with forecasts and historical data to navigate the complexities of the market.
Furthermore, the publication provides in-depth analysis across various product categories including agricultural films, PE piping, PE packaging films, PE hollow products, PE injection molding, and PE drawing, ensuring stakeholders are equipped with nuanced insights to make informed decisions.
