Huatai Futures: Downstream Follow-up Weak, Polyolefin Basis Declines

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Market News and Important Data

In terms of prices and basis, the main contract of L closed at 8,431 yuan/ton (-65), PP main contract closed at 8,628 yuan/ton (-43), North China spot LL at 8,300 yuan/ton (+0), East China spot LL at 8,400 yuan/ton (+50), East China spot PP at 8,550 yuan/ton (-50), North China LL basis -131 yuan/ton (+65), East China LL basis -31 yuan/ton (+115), East China PP basis -78 yuan/ton (-7).

In terms of upstream supply, PE operating rate is 82.4% (-4.5%), PP operating rate is 70.1% (-4.4%).

Regarding production profits, PE oil-based production profit is -1064.0 yuan/ton (-437.4), PP oil-based production profit is -1054.0 yuan/ton (-437.4), PDH-based PP production profit is -1746.2 yuan/ton (-382.2).

In terms of imports and exports, LL import profit is -807.7 yuan/ton (-200.0), PP import profit is -1304.6 yuan/ton (-200.0), PP export profit is $107.6/ton (+25.7).

Downstream demand shows PE agricultural film operating rate at 26.8% (+8.0%), PE packaging film operating rate at 43.4% (+3.1%), PP woven bag operating rate at 40.5% (+2.9%), PP BOPP film operating rate at 61.3% (+1.7%).

Market Analysis

The situation in Iran remains unstable, with attacks on Iran’s top national security official Larijani and attacks on natural gas facilities in Bushehr. The Islamic Revolutionary Guard Corps warns of strikes on oil facilities in Saudi Arabia, UAE, and Qatar. The Middle East conflict intensifies further, shipping through the Strait of Hormuz remains very low, international oil prices rise again, and chemical products remain relatively strong. The current olefin market logic is driven by geopolitical concerns over raw material supply, with shrinking supply expectations supporting olefin prices.

For PE, upstream domestic petrochemical plants are increasingly shutting down or reducing load for maintenance, with further expected declines in operating rates. Coupled with weak import resource arrivals, market supply continues to tighten. Downstream demand is gradually recovering, with spring planting increasing demand for mulch films, but rising raw material costs pressure profit margins, and the recovery in operating rates has not met expectations. Packaging films are mainly for stock replenishment, with PE prices fluctuating significantly at high levels. Downstream procurement is cautious, mainly digesting raw material inventories, leading to some negative feedback on demand and a decline in LL basis.

For PP, supply reduction is more evident, with upstream producers increasingly adopting preventive load reductions. Maintenance losses for PP in March-April are expected to rise, and the peak of PDH unit maintenance continues due to tightening propane supply, supporting PP supply. Demand-wise, downstream operating rates are gradually recovering, but due to large price fluctuations and downstream cost pressures, procurement remains cautious, with some weakening in delivery and a decline in PP basis. Continued attention is needed on upstream reduction and inventory consumption.

Strategies

Unilateral: Cautiously buy on dips for LLDPE and PP for hedging;

Cross-term: None

Cross-commodity: None

Risks

Developments in Iran’s geopolitical situation, significant oil price fluctuations, propane price volatility, upstream plant maintenance dynamics

Investment Consulting Qualification: Securities Permit [2011] No. 1289

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Editor: Zhu Henan