High-cost, low-demand polyethylene companies are in dilemma

“At present, the production of enterprises is indeed facing various difficulties. The upstream raw materials and labor costs are high, and the downstream products are in short supply. The PE industry is likely to face an upcoming reshuffle.” Hu Wei, Assistant General Manager, Chemicals Division, Zhejiang Mingri Holdings Co., Ltd. Daily reporter said.

Industry insiders describe the supply and demand situation of the domestic PE industry as a "pyramid" type. “PetroChina and Sinopec are at the top of the 'Pyramid' and are currently the main PE suppliers in the market, controlling 80% of the upstream PE capacity.” An industry source stated that the end-user demand enterprises in China’s PE are presenting a large regional decentralized structure. There are numerous enterprises and a wide distribution area. In the face of the “overwhelming” situation of the supply side, the demanding enterprises have almost no bargaining power and can only accept quotes passively.

Zhejiang Tomorrow Holding Group Co., Ltd. is a manufacturing and trading company that can produce plastic films and packaging films. The main raw material for its subordinate factories is LLDPE. "In addition to rising raw material and labor costs, the recent shortage of electric power in East China has also affected the demand of enterprises." Hu Wei said that the current subordinate factories have to suspend production for one day a week, but this is still relatively good, like Wenzhou and Jiaxing. Some small and medium-sized enterprises in Taizhou and other places stopped working for no less than two days a week. On the one hand, due to the lack of electricity supply, on the other hand, since the beginning of the year, with the appreciation of the renminbi, orders from overseas regions such as Europe and the United States have continued to decline, and the export volume of enterprises has shrunk. This has led many SMEs to stop work or reduce production.

Hu Wei said that the national tightening policy also had a certain impact on the production and operation of the company. Banks began tightening their loans to chemical companies. Many local small and medium-sized enterprises in Zhejiang have difficulty obtaining bank loans, and some companies have very tight capital chains, which has had a huge impact on the stocking and production of companies.

Difficulties in the operation of downstream demanding companies have reduced the number of upstream raw material purchases such as LLDPE. Affected by this, the recent domestic PE prices are also falling. “A PE manufacturing company that supplied to our factory yesterday was quoted at 10,400 yuan per ton for the LLDPE plant in the morning, and it fell to 10,300 yuan per ton in the afternoon, which may be affected by the sharp drop in the LLDPE futures price yesterday.” said Hu Wei. .

It is understood that since the beginning of May, the domestic PE market was lightly traded, the market demand was poor, and the prices showed a declining trend. In this regard, Zhuo Chuang LLDPE market analyst Qi Junjie told the Futures Daily reporter that in April due to the price of PetroChina, Sinopec sales branch, the domestic LLDPE spot market price has been stable at 11,000-12,000 yuan / ton. Since May, although the international crude oil price fluctuates around 100 US dollars, the domestic LLDPE market is affected by the contraction of end-use demand, and prices are still falling steadily. At present, PetroChina and Sinopec have already lowered their factory prices in May to around RMB 10,500/t.

Yesterday, the Shanghai PE market in East China was lightly traded, with traders quoting mostly flat prices and shipping along the way. 7420D reported 10,400 yuan / ton, firm is mostly a single talk. The market price of PE in Tianjin Port of North China remained stable, and the transaction volume could be negotiated. The SECCO 0209AA reported RMB 10,500/ton.

Hu Wei believes that the current domestic LLDPE market price weakness is mainly affected by poor demand. He said that the supply of PetroChina and Sinopec in the upper reaches has been relatively stable, while downstream demand companies have been unable to form large demand due to various difficulties. If LLDPE prices remain relatively high, demand companies can only choose to stop production. At present, the plastic film and packaging film manufacturing enterprises in Zhejiang are basically in the state of low profit or micro-deficiency. The industry has stopped production and reduced production. This is also an important reason for the shrinking demand.

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