China PE Rally Loses Steam Amid Crude Oil Volatility

China's polyethylene (PE) market lost momentum in late July after a strong recovery earlier in the month. The rally, which was mainly supported by higher crude oil prices and stronger upstream costs, slowed as sharp fluctuations in the energy market created uncertainty, prompting buyers and sellers to adopt a cautious approach.

Although PE prices had recovered from multi-month lows during mid-July, the recent swings in crude oil have made it difficult for the market to establish a clear direction.

Recovery Driven by Costs, Not Demand

China's PE market recorded solid gains over the past two weeks as rising crude oil and ethylene prices strengthened production costs. Firmer futures and lower domestic inventories also encouraged producers and traders to increase their offers.

However, downstream demand remained weak throughout the recovery. Most converters continued purchasing only for immediate production needs, limiting the overall strength of the rally.

Market Turns Cautious as Crude Reverses

The decline in crude oil prices during late July reduced cost support and pressured both futures and spot PE prices. Import suppliers also adjusted their offers lower in response to the changing market conditions.

Market participants said the recent slowdown is mainly linked to uncertainty in upstream energy markets rather than any major change in supply-demand fundamentals.

Many buyers have delayed fresh purchases, preferring to wait until crude oil and futures establish a more stable price trend before returning to the market.

Weak Demand Continues to Limit Buying

Seasonal demand remains subdued, with stable consumption mainly coming from food packaging and daily consumer goods. Most buyers continue following a hand-to-mouth purchasing strategy instead of building inventories.

Despite the current weakness, buying activity is expected to improve gradually in August as converters begin restocking ahead of the traditional "Golden September, Silver October" manufacturing season.

New Capacity May Cap Further Price Gains

While seasonal restocking could provide some support, increasing domestic production is likely to limit any sustained price recovery.

China added 1.2 million tons/year of new PE capacity in mid-July, with another 700,000 tons/year scheduled to start production by the end of August. Although maintenance shutdowns will temporarily reduce available supply, the launch of new plants is expected to improve domestic availability in the coming months.

As a result, any further increase in PE prices will likely depend on stronger downstream demand alongside continued support from the energy market.

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