Plastic rally will turn to a strong concussion phase

As for the late-stage trend of the plastics market, we believe that the rebound in the tight supply and demand support and the suppression of external crude oil prices will turn into a strong oscillation phase.

After entering December, chemical products rose in the general market, reversing the previous pattern of weakness, and plastics were among the leading rebounders. However, in recent days, the price of plastics has dropped continuously, and the main contract has seen three consecutive negatives, barely standing firm on the 10-day moving average. On the 13th, the fourth round of quantitative easing (QE4) announced by the Federal Reserve did not bring much surprise to the market, and popular commodities such as crude oil and gold rushed down. As for the late-stage trend of the plastics market, we believe that the rebound in the tight supply and demand support and the suppression of external crude oil prices will turn into a strong oscillation phase.

The Federal Reserve’s QE4 is fully within market expectations. The main purpose of this QE4 is to purchase long-term Treasury bonds and extend the duration of bonds held by the Fed, and to lower the long-term yield. This is basically similar to the purpose of the previous reversal of operations. The size of 45 billion U.S. dollars will not bring any additional liquidity impact to the market. The rush of commodity markets has shown that the market is not indifferent to this policy.

As far as crude oil is concerned, the marginal effect of QE's favorable margins has been getting lower and lower, and the key points that determine the market trend are still its own fundamentals and the progress of the fiscal cliff. The OPEC meeting decided to maintain the daily output of crude oil at 30 million barrels, which is in line with market expectations. However, current market demand has not recovered much. In the United States, domestic crude oil production has risen rapidly this year. Together with the end of the overhaul of the Beihai Oilfield and the production provided by the Sudanese and South Sudanese reconciliation, the market’s recent supply and demand relationship remains in a loose state and suppresses the short-term trend of crude oil. The financial cliff is currently not going smoothly. At present, it is only about the last two weeks or so before the US economy fell into the fiscal cliff. However, the author believes that both parties will eventually reach an agreement. Combining the fundamentals of crude oil itself, we believe that crude oil will continue to be dominated by short-term shocks in the short-term, and support for the plastic market outlook will be limited.

Since last year's plastic inventory hit a record high, and this year there are a large number of new capacity plans, so the market has been extremely bearish on plastic, the current price difference is long-term upside down, the downstream market did not dare to get too much, most of the order purchases, This puts the plastics market in an overall destocking situation this year. From another perspective, although the market mentality is pessimistic, there has been no substantial reduction in downstream demand. Coupled with the policy of reducing the production of petrochemical products, the government has been implementing the policy and most of the new production capacity has been postponed and put into production. Since the second half of this year, social stocks have been In an extremely low state, the data showed that the market was actually in a state of supply less than demand in most months, and this contradiction was not shown because most of the businesses had light inventory operations.

The gap in supply caused by the Daqing plant accident was about 100,000 tons. Although the supply of the Qilu and Fushun projects put into operation in the second half of the year will gradually supply the market, the supply pressure will be eased, but we believe that the Daqing plant failure is The influence of market psychology is even greater. The bulls that have been suppressed for a long time have an outlet, which can also be said to be the trigger for the sharp rise in the current round of the market.

At present, the northeastern region gradually enters the traditional agricultural film season, and the downstream processing plants will start preparing for production. This will undoubtedly aggravate the current tight supply of the market. Although prices have risen in the short term, given the special nature of the agricultural film, it is not very flexible with regard to price, and the number of market purchases will not be significantly reduced due to price. Therefore, we believe that the short-term supply and demand contradictions in the market will become more acute as the time for the preparation of the downstream equipment time comes.

After a series of quick pull-ups, the LLDPE's price in recent months has returned above 11,000 yuan, basically equal to the current spot price, and even slightly higher. At present, the performance of the spot market is relatively calm, the overall situation of low-priced supply of sought-and-received high-priced supply no one cares, the market did not appear the phenomenon of price increases. The performance of the spot market has also slowed the upward momentum of prices. It is expected that with the arrival of the reserve season, spot prices will still have room to grow slowly. However, the possibility of rapid resumption of the ** is no longer significant.

Taken together, LLDPE's current over-and-empty factors are all obvious, and the contradiction between supply and demand will be the dominant factor in the near future. Under the repression of weak crude oil prices and narrowed base difference, LLDPE will generally be dominated by strong biases in the near-term. We believe that as long as the price remains above the 60-day moving average, the long-term operation can be absorbed by the bulls. Once the price falls below the 60-day moving average, it will shift into the range of shocks.