Dongguan Plastic City once experienced a rush to buy goods

Securities Times reporter Wu Shun

“Over these days, it’s indeed a bit ‘unproductive’—spending all my time tracking price fluctuations, and engaging in fruitless back-and-forth communications with clients over bargaining. Instead, I’m not putting as much effort into production and business.” When discussing the recent chaos in downstream raw material markets triggered by the surge in crude oil prices, Xu Gaofeng, the person in charge of Shenzhen Zuohua Technology Co., Ltd., said with a sense of helplessness.

This kind of chaos is vividly evident in Dongguan Zhangmutou Plastic City, which is known as a “bellwether” of the nationwide plastics market. In early March, delivery trucks coming to buy goods lined up here in several kilometers of queues. Merchants’ phones rang nonstop; prices seemed to change at any moment. Downstream manufacturers feared they wouldn’t be able to buy enough stock, sparking an unexpected “scramble for plastic” frenzy.

However, the Securities Times reporter’s on-site investigation found that this hot rush was short-lived. The plastic city has now shed its noise and bustle; there is plenty of inventory in the warehouses, but the number of vehicles coming to pick up goods is very small. Although plastic prices still remain high, there is no substantive shortage in reality due to sufficient supply, and the market has quietly fallen into a deadlock where quotes hold firm but deals are bleak—“prices have value but the market is empty.” A short-term surge fueled by geopolitical conflict and driven by sentiment ultimately returns to a rational game led by supply-and-demand fundamentals.

Traders check the news dozens of times a day

Oil is not only the “lifeblood” of modern industry, but also a basic feedstock for nearly all chemical products such as plastics, chemical fibers, and rubber. Since March, Middle East geopolitical conflicts have escalated sharply; international crude oil prices have soared, directly triggering the plastics raw material market, which is the core downstream track of oil.

As the end procurement party for plastic raw materials, Xu Gaofeng is most sensitive to price fluctuations: “The polyethylene I buy—before the Spring Festival, the lowest price was around 6,200 yuan per ton. Now the quote is basically 9,800 yuan, an increase of more than 50%.” Tan Yunyi, general manager of Dongguan Haiyu Plastic Raw Materials Co., Ltd., a trader with more than 20 years in the market, told reporters that the price of a material he mainly handles rose from a low of 7,800 yuan last year to about 13,000 yuan now—an increase of more than 5,000 yuan per ton.

Behind the sharp jump in prices is traders’ tight nerves. Reporters noticed during interviews that on the phone screens of multiple traders, crude oil futures quotes and geopolitical news alerts flash alternately. “We keep watching—every round of statements from both sides of the war directly affects prices. When prices move, downstream procurement demand changes immediately.” One trader admitted that sometimes they have to check the news dozens of times a day, afraid of missing key information that could lead to misjudgment.

Warehouses are full, but there are very few customers

The rapid surge in prices almost coincided with the “rush to buy.” Tan Yunyi recalled that in the first few days of March, the plastic city and several major nearby warehouses were completely jammed—delivery trucks lined up in long queues. “I haven’t seen anything like this in decades. Plastics have never been in short supply,” he said, still finding it hard to believe.

A staff member from a leading domestic plastics supplier explained to reporters that during the Spring Festival, downstream factories take holidays, but upstream petrochemical plants keep producing continuously. Typically, this leads to inventory accumulation. After the Spring Festival, raw material prices often trend lower. Over the past year, plastic prices have continued to fall, and downstream manufacturers generally didn’t dare “stockpile,” causing inventories to remain at low levels when production resumed after the holiday. “After the Spring Festival, everyone needs to replenish materials, and it coincided with the sudden spike in crude oil. Prices change day by day, so downstream can only grab some as quickly as possible.”

But the “rush to buy” didn’t last. On March 24, the reporter saw at the plastic city that rows of merchants were neatly lined up, but there were very few customers. At the warehouse at the entrance of the plastic city, only two or three trucks were loading goods. The loading workers told reporters: “There’s no need to rush anymore—there’s so much inventory. You can load and take it whenever you arrive.” Tan Yunyi revealed that at present, the market basically lacks no plastics at all, and nearby warehouses are basically fully stocked.

“Value with no market” becomes a common predicament

In Huangjiang Huanan Plastic City in Dongguan, not far from Zhangmutou, the situation is similar. A trader told reporters that after raw material prices soared, his overall outbound volume fell by 30% to 40%, trapping him in a typical deadlock of “value with no market.”

“The current pricing system is very unhealthy, which is bad for both upstream and downstream.” The trader said that raw material prices sometimes rise or fall by seven or eight hundred yuan in a single day. Such violent fluctuations make him unable to prepare inventory normally, and his downstream customers are even more in a difficult position. “We don’t dare stockpile. Now we can only wait until downstream customers send inquiries, then ask for the latest price. If the customer can accept it, we place an order with the upstream.”

Xu Gaofeng’s factory currently has raw material inventory that is only enough to sustain one week of production. “With the current prices, I won’t stockpile. I can only ensure basic demand. How many orders the downstream has, I’ll temporarily buy how much.” He told reporters.

This kind of pricing environment also creates “breach of contract” risks in the industrial chain. Multiple manufacturers reported that when prices rise rapidly, some traders with relatively low integrity will cancel orders for various reasons, such as by using the “force majeure” clauses in contracts, refusing to deliver under orders at the previously low prices. “They’ll say that the conflict in the Middle East caused raw material prices to surge, which is force majeure. Then they send the customer a photo of an empty warehouse, and the other side has no way,” one manufacturer said.

What practitioners think about the long term market

Still confident

For downstream end manufacturers, raw material costs account for a very high proportion. Xu Gaofeng introduced that his company’s products, such as stretch wrap film, have plastic raw material costs of about 90% of total costs. “For a product that originally cost 8 yuan, raw materials were 7 yuan. If raw materials rise by 50%, the total cost becomes 11.5 yuan—losing money on every order.” At present, he and peers are actively communicating with downstream customers about price increases, but they generally meet resistance: “Most customers don’t accept the price increase.”

Plastic raw materials are key materials for many industries such as home appliances, automobiles, toys, and building materials. Price fluctuations will transmit step by step along the industrial chain. But judging from the current situation, the transmission is not smooth. A procurement person at a logistics company said that the plastic film they purchase accounts for a very low share of overall costs; they can accept price increases. But fuel costs account for a higher share, so logistics companies have already announced increases in freight rates one after another.

“Many downstream manufacturers don’t dare take new orders anymore. They take more orders only because they have a lot of inventory from before,” Tan Yunyi observed. Currently, the orders still running are mostly completed using raw material inventory from earlier—one of the reasons for the “rush to buy.” Some manufacturers must fulfill prior orders, so they can only replenish materials at a higher price.

However, during the visit, most practitioners still have confidence in the long-term market. They believe that the current extreme spikes and crashes are more a short-term shock driven by sentiment. “We’re paying attention to the situation in the Middle East, and there are signs the overall situation is easing. Even if extreme circumstances occur, China’s sources of crude oil imports are extremely diverse, so there won’t be a shortage of oil, and there certainly won’t be a shortage of plastics. Also, China’s energy mix is diverse with strong substitutability, so these high prices won’t last long.” A downstream end manufacturer said. Upstream petrochemical plants have been steadily producing and shipping, and the supply chain’s foundation remains solid.

(Editor: Zhang Xiaobo)

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