Starting in mid-October, international crude oil prices experienced another sharp upward trend, with futures climbing from around $85 per barrel to over $98 in just a few weeks. However, by late November, prices began to retreat and have since stabilized near $88 per barrel. Over the past two years, global oil prices have significantly influenced the plastic raw material market. In 2006, for instance, plastic material prices closely mirrored oil price movements. This time, though, despite a rapid drop in oil prices within two months, the plastic market has shown little reaction.
Liu, a manager at a plastics company in Dongguan, Guangdong, shared his concerns with reporters. His company mainly produces Christmas trees for export. “This year’s profit margin is very low because raw material costs are too high,†he said. “Customers don’t want to pay more, so we’ve taken orders just to keep them. The profit is really thin. Raw material prices remain high, and we have no choice but to buy and use them. Because of the low profit, we’re even thinking about taking more holidays next Spring Festival.â€
Liu’s situation reflects a broader challenge among many small and medium-sized Chinese plastic companies. As product prices can’t be increased, profits shrink, leading to reduced production or even shutdowns. This weak downstream demand has severely impacted the plastic raw material trading market. Price fluctuations have become the norm, and traders often describe the market as “light on activity.†This condition has persisted for nearly two years now.
From mid-2005 to early 2006, plastic raw material prices rose by over 30%, causing shortages for downstream companies. By April 2006, driven by large domestic petrochemical firms, prices surged again, with all types of plastic materials increasing by 10% to 20%. During this period, oil prices also climbed in tandem. However, by October 2006, prices dropped due to limited downstream demand. Since then, the market has remained relatively stable, with no major fluctuations—essentially, “peak season doesn’t mean higher prices, and off-season doesn’t mean lower ones.â€
This year, when oil prices rose in October, traders hoped for a small price rebound in plastic materials, especially with the agricultural film production season approaching. But the downstream market remained unresponsive. The weak demand has largely dashed traders’ optimism. “We’re not willing to take positions; customer purchases are actually limited,†said Mr. Mao, a veteran trader in Yuyao with nearly five years of experience in the industry.
According to reports from interviews, some large agricultural film producers stock up during peak seasons. However, due to CNPC and Sinopec's unified regional sales policies, these big downstream companies can directly purchase from the state-owned enterprises, bypassing traditional traders. Meanwhile, smaller companies, struggling with cash flow, tend to follow the market and keep transactions minimal. As a result, overall trading volumes have declined, making crude oil price changes less impactful on the market.
In general, weak downstream demand and resistance to high prices should lead to falling prices. Yet, since October 2006, plastic raw material prices have remained largely unchanged. Strong ex-factory prices from PetroChina and Sinopec continue to support high raw material costs, and rising oil prices make manufacturers reluctant to cut prices. This creates a tug-of-war between supply and demand. With weak demand, upstream companies are forced to maintain the status quo. In this environment, the impact of international oil price fluctuations on the market is much less significant than before.
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