Guotai Junan Futures: Polyolefin prices decline due to falling crude oil prices and supply-demand changes

Recently, polyolefin prices have pulled back. On the one hand, this is due to the US and Iran’s plan to finalize a memorandum agreement, which strengthens market expectations for navigability; meanwhile, the sharp fall in crude oil prices has driven the focus of chemical products lower. In addition, if navigability is realized, the resumption of logistics for cracking feedstocks will also drive polyolefin supply to return, causing a marginal turnaround in the market’s supply-shock outlook.

In terms of the real situation, after large volumes of naphtha arbitrage cargoes arrived at ports in late April, they indeed brought some push for ethylene cracking feed loads. In May, cracking runs started up at a low level showed a slight month-on-month uptick versus the prior month, and polyolefins also increased their feed loads accordingly. At the same time, in May the output rate of main gas-to-diesel products fell month-on-month; some feedstocks were partially diverted to chemicals production, so on the supply side, upside variables are relatively limited.

On the demand side, outcomes are somewhat split. Both downstream segments are affected by high prices, but as spring planting comes to an end, plastics enter the off-season for consumption; terminal planters and distributors show low willingness to hold inventory during the off-season. As a result, despite recent full-density unit realizations shifting production to HD, the basis still performs relatively average.

For PP, selected downstream samples show a slight recovery in profit margins and orders; demand remains stable at low levels. The differentiation on the demand side also adds further pressure to the L-PP price spread. Recently, Saudi Arabia’s polyolefin units resumed production, while Middle East propane’s post-war supply loss has turned into a longer-term factor. Whether the PDH units—previously with more noticeable supply flexibility—can smoothly return will also marginally affect the direction of the L-PP price spread. (Guotai Junan Futures)