Four units are planned to be put into operation in the second half of the year, second only to the “large-scale production of coal chemical industry” in 2014. Static estimation shows that there is no doubt that the expansion price will fall, but whether the device can be put into operation on schedule, whether the product is a standard product or a special material are uncertain factors. In addition, the downstream polyolefin warms up after tax reduction and fee reduction and domestic demand stimulation, and the upstream unit plans to centralize overhaul after the start-up rate increases, which can offset the potential pressure on the supply side. Therefore, with the support of the traditional peak season in the third quarter, the price of polypropylene is expected to reach a new high in the year. The marginal role of supply pressure in the fourth quarter is also declining. The toughness of the demand side has become the main driver. We remain cautiously optimistic about the market in the second half of the year.
A Provision is temporarily unavoidable
Capacity expansion is still uncertain
By the end of June, the cumulative production capacity of PE in China was 18.4 million tons, of which 280,000 tons per year were added to the high-density equipment of Jiutai. The total production capacity is expected to exceed 20 million tons by the end of the year, corresponding annual capacity growth rate is 10.33%, second only to that in 2014, which ranks third in history.
At the same time, the cumulative capacity of PP is 23.21 million tons, of which two new sets of equipment, Jiutai and Hengli, with a total capacity of 770,000 tons per year, are expected to produce more than 25 million tons at the end of the year, corresponding annual capacity growth rate of 11.41%, less than in 2014 and 2016, but the increase is the second highest in history.
Foreign new capacity is mainly concentrated in the United States, which will not have a great impact on China in the second half of the year. Even if China buys a large number of American energy products, the pressure will be transmitted to China as soon as possible by 2020. The new unit with an annual capacity of 400,000 tons HDPE+350,000 tons LLDPE+900,000 tons PP is scheduled to be put into operation in the fourth quarter. At present, the ethylene glycol unit has produced qualified products and the olefin unit has little problem in putting into operation on schedule. In addition, the DPE plant with an annual capacity of 400,000 tons in Korea and the P P plant with an annual capacity of 150,000 tons in Japan are also scheduled to start production in the fourth quarter. The situation in Iran is chaotic, and the installation of 300,000 tons LDPE + 450,000 tons PP per year may be delayed. Generally speaking, the impact of new foreign production capacity on domestic production in the second half of the year is negligible.
HDPE and LDPE are mostly produced by new PE devices, while LLDPE is the corresponding target of futures, and the pressure of production capacity is not direct. PP has more new capacity than PE, and contains more futures corresponding to the target wire drawing, the market is generally expected to supply excessive PP in the fourth quarter. By analogy with the last two peak production in 2014 and 2016, the PP price performance is quite different under the combined effect of the crude oil market falling and rising, economic data bad and good. In the second half of the year, when the four sets of devices will be put into operation, whether they will produce standard products or special materials, have not been clearly determined. It is not excluded that similar conditions will occur when the planned production in 2013 will be put into operation but will be postponed to 2014.
PE output in August or hit a new low in the year
From January to June, the cumulative output of PE in China was 8.755.54 million tons, an increase of 13% over the same period last year, the highest in history. Among them, the increment mainly comes from HDPE and LLDPE. This year, LLDPE’s monthly output has remained around 560,000 tons, even in the traditional off-season from April to June. In June, 32% of the year-on-year high production put pressure on spot prices, and futures prices also rebounded to their lowest levels in the year. The maintenance loss in July is less than that in June, and the output is expected to be 1.4 million tons. In August, the number of overhaul devices increased, and production may hit a new low in the year.
From January to June, domestic PP output was 10.08 million tons, an increase of 4.74% over the same period last year. The new equipment of Jiutai Energy and Hengli Petrochemical Company was put into full operation from May to June. In July, production is expected to be 1.8 million tons, second only to March. In the second half of the year, four units with a total capacity of 2.15 million tons per year were put into operation. At present, Juzhengyuan and Sino-security have jointly started, and the whole process will be completed by the end of July, but the actual production will be realized as early as August. In August, the overhaul capacity is much larger than the new production capacity, so the monthly output will not be higher than that in July. Therefore, the production pressure of the new device will appear in the fourth quarter.
PP import volume is expected to decline in the later period
From January to May, PE imports reached an all-time high. In February and April, HDPE and LLDPE imports increased by 40% compared with the same period last year. This partly explains the phenomenon that spot prices soared repeatedly in March and fell smoothly in May. On the export side, HDPE has increased significantly, but its total volume is only 15,000 tons, so it has little impact on spot and futures. Since mid-June, PE import forecast has decreased, especially the LDPE forecast in the Middle East has declined, which has caused the domestic and foreign prices to rise in early July.
From January to May, imports of PP increased by only 50,000 tons compared with the same period last year, which explains why port stocks are always at a low level. With the expansion of domestic production capacity and research and development of high-end special materials, PP imports will further decline in the future.
Profits of oil and coal production have shrunk
In the first half of the year, both oil and coal-based production profits hit a new low in six years. When the price of polyolefin products continues to be low, raw material price becomes the most important factor affecting gross profit. Crude oil has risen, coal mines have limited production, methanol has fallen, ethane is cheap, and the profitability of each route varies greatly. Take PP as an example, the production profit is PDH > methanol extraction > Oil > coal. The long-term maintenance of this situation leads to the high start-up rate of MTO plant and the shortage of propylene supply. When the price of polyolefin rises, the willingness of the two oil and coal chemical industry to tap the price will appear.
According to the proportion of different consumption areas, PE demand side focuses on agricultural film, packaging film and plastic products, while PP demand side focuses on BOPP and injection molding.
B Demand is picking up
The peak season of greenhouse film is approaching
Usually, there is no traditional low peak season in the field of packaging film. According to the survey feedback in early July, this year’s demand for food packaging film was basically the same as last year, but export orders were reduced, raw materials and finished products stocks were at a low level, and enterprise profits were lower than in previous years. Single filament and hollow start-up rates are close to the peak in the year, indicating that terminal demand is warming up. From January to May, the cumulative export volume of pipes was 3.62 million tons, an increase of 9.70% year-on-year. Except for February, the export volume of other months increased by about 10% year-on-year. Usually, in May-July, the traditional off-season of pipe materials, the start-up rate continued to decline, until August, when the enterprise orders rebounded, the start-up rate gradually increased, in order to meet the traditional peak season of October. If the demand for pipes is not in advance, the January contract will be favorable. From January to June, the output of agricultural film was 1.138 million tons, basically equal to the same period in 2018. Although the current agricultural film is in the off-season, the market price of Shouguang double-film in Shandong has rebounded to the peak level in the first quarter after the price of PE raw material rose. In addition, since the end of June, the start-up rate of agricultural film has increased for three consecutive weeks, with a cumulative increase of 23%. According to previous year’s data, by the middle and late August, the start-up rate may exceed 50%. The centralized replenishment at the end of July is expected to boost PE prices.
Plastic products have great potential for consumption
From January to May, the output of plastic products was 28.865 million tons, down 1.2% year on year. However, after the value-added tax cut on April 1, output rose by 26.92% annually in May, the highest in the same period in history. Over the same period, the cumulative export volume was 5.48 million tons, an increase of 10.71% over the same period last year. On the one hand, it is related to the continuous introduction of tax reduction and fee reduction policies by the state, on the other hand, it is also related to the change of RMB exchange rate for export. In addition, due to the low price, good quality and stable channels of domestic goods, although the United States imposed tariffs after March, most purchasing enterprises in the United States still choose to undertake some tariffs on their own initiative. At present, the per capita consumption of plastic products in China is less than 50 kg, which is much lower than 170 kg in the United States. There is a great space for the future production of plastic products to grow. If the output of plastic products maintains its momentum in May after June, its price support for polyolefin raw materials will become stronger and stronger.
BOPP start-up rate is stable
In the first half of the year, BOPP prices followed raw material PP, falling all the way, while production profits reached their highest level in the same period in five years. Enterprises are profitable, coupled with sufficient orders, naturally will not rush to stock up, raw materials on demand, most of them only maintain 7 days of usage, finished goods inventory is also controlled within 10 days. From January to June, the BOPP start-up rate was 57.65%, and the overall stability was maintained. Only in late June, the centralized overhaul made the start-up rate fall below 50%. By the end of June, BOPP had a total capacity of 6.35 million tons in the year, including 220,000 tons of capacity for five new lines. In the second half of the year, four new routes are planned in China, and some enterprises also choose to open processing plants in Southeast Asia. The demand for raw material PP will be increased synchronously with the expansion of new capacity.
Household Appliances Export Increase
In the manufacture of household appliances, white electricity uses relatively more PP. From January to May, the output and sales of washing machines, refrigerators and air conditioners increased significantly compared with the same period last year. Although the growth rate of domestic demand is still declining, the growth rate of external demand has increased significantly, and the export growth rate of refrigerators has reached 12.81% year-on-year. It is expected that the good effect of injection moulding demand on PP will be fully fermented from August to September for three reasons: first, stimulating domestic demand. In April-May, the output and sales of four household appliances improved significantly compared with last year, especially after the reduction of VAT on April 1. In addition, in January and June, policies to promote the upgrading of household appliances were also introduced. Second, stimulate exports. In the first half of this year, most household appliances export increased much faster than domestic sales, partly because of the change of RMB exchange rate, and partly because of the expansion of overseas markets. After the G20 summit, Sino-US economic and trade frictions eased and household appliances exports improved. Thirdly, the peak season is coming. Air conditioning and refrigerators are in the hot season. Eleven long holidays and double eleven promotions further boost consumption, and the peak output of washing machines also appeared in August-September.
Passenger cars will usher in a new cycle of depot replenishment
Although the sales of new energy vehicles increased by 65.9% in the first half of the year, it can not change the dilemma of the general passenger vehicle production and sales downturn. However, the latest June generalized passenger car retail sales rose year-on-year for the first time in 13 months, which is also the largest annual growth rate in June of this century. It is no different from a shot in the arm for the market.
At the same time, the inventory clearance before the Spring Festival in January-February and the five-to-six-month national exchange in May-June have reduced the passenger car inventory to a historical low, and a new cycle of replenishment is coming.
By the end of last year, the domestic car ownership of 1,000 people was 147, far lower than 500-600 cars in Germany, Japan, France and 800 cars in the United States. With the increase of residents’income and the rise of domestic brands, the car market has great potential in the future.
The following four factors have become the main basis for the turning point of the car market in the second half of the year: first, the role of policy incentives can not be ignored. Value-added tax (VAT) was reduced to 13% on April 1, and purchasing tax base changed on July 1. Take the recently heated discussion of “13 yuan to buy a car” as an example, the purchase tax is calculated according to the actual transaction price of 13 yuan, rather than the previous minimum taxable price. Secondly, since July 1, the Sixth National Standard has been implemented in key regions, Pearl River Delta and Chengdu-Chongqing areas in advance, while the Sixth National Standard for Light Vehicles and Urban Vehicles has been implemented on July 1, 2020. The implementation of the Sixth National Standard has accelerated the elimination of the Third National Vehicle, which is bound to trigger a wave of vehicle replacement. Thirdly, Guangzhou and Shenzhen will increase the number of license plates by 100,000 and 80,000 respectively this year and next. Among the remaining five limited cities, Hangzhou and Tianjin are most likely to follow up, with about 6,000 and 10,000 incremental passenger cars per month. Fourthly, the state vigorously promotes new energy electric vehicles such as hydrogen and methanol. In 2020, all buses in key cities will be replaced by new energy vehicles. Taxis in Shenzhen have been fully electrified in the first half of the year. The replacement of this wheel will greatly increase the sales of new energy vehicles.
In the long run, lightweight is the development direction of the automotive industry, and the reduction of weight directly means the increase of the range. Fuel vehicle weight can be reduced by 10% and fuel efficiency can be increased by 6%-8%. For pure electric vehicles, the weight of the vehicle is reduced by 10 kg, and the range of the vehicle is increased by 2.5 km, while 100 kg plastics can replace 200-300 kg of other materials. With the popularization of new energy vehicles and the maturity of modified plastics technology, the use of plastics in automobile production will be greatly increased in the future. At present, PP accounts for 37% of all automotive plastics, and has an expanding trend. In the second half of the year, the demand for automotive injection moulding is optimistic.
