On March 5, the Premier of the State Council, on behalf of the State Council, made a report on the work of the government to the second session of the 13th National People's Congress. When discussing the tasks of the government in 2019, the government announced that it would reduce the enterprise value-added tax rate, reduce the current 16% tax rate of manufacturing industry and other industries to 13%; clean up the additional charges of electricity price, reduce the cost of power consumption in manufacturing industry, and reduce the average electricity price of industry and Commerce by another 10%.

Over the year, the burden of corporate tax and social security contributions has been reduced by 2 trillion yuan, and this reduction is unprecedented. As a part of the manufacturing industry, the plastic products industry will inevitably benefit. It can be said that tax reduction and fee reduction will inject new impetus to the development of the plastic products industry, and will inevitably lead the industry to a better direction.

While enjoying the favorable policy, the basic market of plastics is gradually improving.

Crude oil will continue to surge upwards

Influenced by the OPEC Member States and Russia-led non-OPEC production reduction agreement, the expected improvement of Sino-US trade negotiations, the slowdown of global economic growth and other news, the recent international oil price shocks have been sorted out, but from the trend, the upward trend of oil prices has not changed. WTI crude oil main contract closed at $56.59 per barrel as of March 4. In the past 14 trading days, WTI crude oil has risen 12 trading days, up 25% this year.

In December 2018, OPEC reached an agreement with non-OPEC which participated in the production reduction. From January 1, 2019, a new round of production reduction was implemented on the basis of the daily production of crude oil in October, 2018 (some member countries are in September or November). OPEC overall reduced its production by 800,000 barrels per day, and non-OPEC which participated in the production reduction reduced its crude oil production by 400,000 barrels per day. A total of 1.2 million barrels per day were reduced, and the duration of the reduction agreement was six months. Among them, OPEC member countries Libya, Iran and Venezuela did not participate in the production reduction agreement, and Qatar withdrew from OPEC. The daily output of OPEC crude oil in February was 560,000 barrels less than that in January. Russia's crude oil production in February was 11.34 million barrels a day, a slight decrease of 0.35% compared with January. Russia's daily oil production in February was about 75,000 barrels lower than its October production reduction base, far below its target of 228,000 barrels per day in the OPEC-led production reduction agreement reached at the end of last year. But Russia's energy minister said recently that Russia plans to accelerate crude oil production cuts in March, and will achieve production cuts in the first quarter. Oil production in OPEC and non-OPEC member countries has declined, while the slowdown in U.S. oil production efficiency will continue to support oil prices in the future.

Improvement of supply and demand Petrochemical Price Opens the Preliminary Stage of Rising

According to the data monitored by the Institute of Purchasing, Chemical and Plastic Research, as of March 4, except for the low start-up rate of HDPE pipes, the start-up rate of agricultural film, packaging, hollow and other products has reached 50-55%, while the start-up rate of PP downstream has risen to 55-60%. With the increase of downstream start-up rate, Petrochemical inventory declined rapidly. As of March 4, domestic petrochemical polyolefin stocks declined by 19.6% compared with the peak year after year.

Inventory declined and Petrochemical Pressure eased. At the same time, petrochemical plants will be included in the overhaul period from March. March-June is the month of centralized overhaul of domestic petrochemical plants, involving units including Tianjin United, Zhongsha Tianjin, Yanshan Petrochemical, Shenhua Ning Coal, Maoming Petrochemical, Guangzhou Petrochemical, etc. The overhaul involves 5.91 million tons of capacity, and the loss caused by overhaul is estimated to be 645,000 tons. Petrochemical inventory pressure will be greatly eased, and price increases are inevitable. According to the monitoring data of Purchase Chemical and Plastic Research Institute, on March 5, the price of petrochemical PE increased by 50-100 yuan/ton and PP by 50-150 yuan/ton. With demand improving and petrochemical inventory decreasing, Petrochemical prices are expected to continue to rise.

The east wind is rising Market Warming Futures Prophet

Crude oil and supply and demand continued to improve, and futures market took the lead. As of March 5, the closing price of PP futures 1905 contract was 8895, up 238% or 2.7% from the closing price of 8657 on February 28, while the closing price of PE futures 1905 contract was 8720, up 140% or 1.6% from the closing price of 8580 on February 28.

Take PP futures as an example. On March 1 and 4, the increase of PP positions and the increase of PP releases went up, while the technical indicators of daily K-line and weekly K-line continued to improve, and there was a possibility of further upstream in the short term. However, the current price level has touched the Brin Channel on the track, but also along the finishing platform, 9000-9060 position there is some pressure, if the price breakthrough will open up room for rise.

In summary, the plastic market is expected to continue to improve, driven by favorable policies and rising crude oil/futures and petrochemical prices.