2017 actual PE production capacity may not be as expected

2017 actual PE production capacity may not be as expected

Capacity is one of the factors affecting price movements. The fact that capacity is invested does not mean that prices will fall, sometimes it is the opposite. In 2015, the domestic new capacity of PE was actually zero, but the price fell in the same year. In 2016, domestic PE equipment capacity entered an intensive period. According to statistics, domestic PE production capacity increased by 1.17 million tons in 2016, an increase of 7.77% from the previous year. In 2017, the planned domestic production capacity was 2.37 million tons, an increase of 14.6% from the previous year. The conversion to effective capacity is expected to increase by 7.55% from the previous month. However, considering that the progress of PE plant production in recent years is mostly less than expected, the delayed release is more common, and the actual capacity production in 2017 may not be as expected.

In 2016, there were also more new production capacity of overseas PE devices, but overseas sources did not have an impact on the domestic market. Domestic PE imports are expected to decrease by about 9% in 2016, which is the first year-on-year decrease in PE imports since 2011.

The main reason for the decrease in import volume is the depreciation of the Renminbi, the increase in import costs, and the loss of imports. The author calculated that the LLDPE import profits for the whole year of 2016 were almost at a loss. After October, with the acceleration of the RMB depreciation process, the import losses expanded to 1000- 1,500 yuan / ton. We believe that the renminbi will continue to depreciate in 2017, which will not be conducive to PE imports but will be beneficial to PE exports. Therefore, the new capacity of PE in overseas markets will not significantly impact the domestic market.

PE downstream demand is improving overall

Although the increase in PE in terms of supply was limited in 2015, demand was declining, so the overall price fell. In 2016, the domestic macro economy improved, and the downstream demand for PE improved overall. Therefore, although new capacity was put in 2016, the price rose due to demand support. From the perspective of the increase in the output of PE downstream products, the main products have rebounded. From January to November 2016, the growth rate of plastic film production increased from 3.4% to 6%, and the daily plastic products increased from 0.67% to 6.9%.

The current macroeconomic indicators are generally good, and the economic situation has not changed much. From the seasonal consumption of plastic downstream, the November to the Spring Festival is the reserve period of the film demand, and the peak season is after the Spring Festival to March. Therefore, the late peak demand season has certain support for plastic prices.

PE new material will increase the replacement of recycled materials

In the first 10 months of 2016, domestic PE recycled material production decreased by nearly 500,000 tons year-on-year, a reduction of nearly 12%. The import of PE recycled materials decreased even more. In the first 10 months of this year, the total amount of imported PE recycled materials decreased by 926,300 tons, down about 45% year-on-year. The supply of PE recycled materials has decreased significantly. The main reason is that the government's efforts to rectify the environmental protection of the renewable materials market are unprecedented. The major waste plastics markets in North China and East China have been hit hard. A large number of recycled materials and workshops have been shut down for several months or even shut down. In 2017, the national environmental protection efforts will not be relaxed, and the recycled materials will gradually withdraw from the market. The replacement of new materials for recycled materials will increase, and the demand for new PE materials will be enlarged.

From the current plastics market, although there are unfavorable factors for the increase in supply due to the intensive production of new capacity, the actual effect of capacity production may not be as expected. Under the background of overall macroeconomic stability, PE downstream demand is improving, and demand is the most critical variable that determines the price trend of plastics. In 2016, demand improvement has a significant driving effect on prices. Jiuzhi Plastics Network is optimistic about the macro economy in the first half of 2017. Demand drivers still exist, and the 1705 contract still has the potential to hit new highs.