I. The Complex Dynamics Behind the "Stability"
Recently, China’s ethylene tar market has exhibited a classic pattern of "surface stability amid underlying pressure." While prices appeared stable with mixed fluctuations this week, this apparent calm must be viewed against a backdrop of sharp declines in international crude oil, continued losses in downstream carbon black production, and weakening expectations for its substitute, high-temperature coal tar. These factors make the current price stability worthy of close scrutiny.
The recent period saw one of the most significant adjustments in the international crude oil market this year. The magnitude of the decline represents an extreme scenario rarely seen in recent years. This drop was not triggered by sudden changes in supply-demand fundamentals but rather by a rapid reversal in geopolitical expectations. Following the Democratic Party's victory in the midterm elections and their regained control of both chambers of Congress, market anticipation of large-scale military conflict between the U.S. and Iran significantly diminished. Consequently, the geopolitical risk premium previously embedded in oil prices was rapidly squeezed out.
As a byproduct of naphtha cracking units used for ethylene production, ethylene tar costs are naturally linked to crude oil prices. The substantial drop in crude oil weakens the theoretical cost support for ethylene tar, marking it as the most critical bearish variable this week. To understand this divergence—where costs fall while prices remain stable—it is necessary to examine supply rigidity, relative pricing with substitutes, and downstream essential demand.
II. Cost Side: Erosion of Geopolitical Premium Loosens Cost Support
The core event affecting costs recently has been the shift in the international crude oil market. With the Democratic Party winning majorities in both the House and Senate, thereby regaining control of Congress, the market perceives a reduced likelihood of intensified U.S.-Iran conflicts, leading to a noticeable easing of supply risk concerns. Post-election, the perceived risk of large-scale conflict between the U.S. and Iran has declined, weakening the geopolitical support for oil prices.
For ethylene tar, the transmission of falling crude oil prices occurs through two channels: first, direct cost transmission, where lower expected raw material costs for naphtha cracking units reduce the cost floor for ethylene tar as a byproduct; second, sentiment transmission, where increased market wait-and-see attitudes lead to cautious procurement by downstream buyers.
III. Supply Side: Minimal Changes in Unit Operations
There have been no new capacity additions or newly commissioned units recently. Domestic ethylene tar supply depends entirely on the operating rates of existing ethylene plants. In this context, the impact of feedstock lightening is evident, and supply remains relatively tight.
IV. Demand Side: Dual Pressure from Carbon Black Losses and Tire Price Negotiations
The demand side represents the clearest source of bearish pressure. One of the primary downstream applications for ethylene tar is carbon black, whose core terminal market is tires. Recently, the performance of both these products has been lackluster.
Regarding carbon black, sample enterprises currently operate at a utilization rate of 60%. As the heating season approaches, some companies have supply assurance plans, leading to a future state where larger producers maintain stable operations while smaller ones run at low loads. Overall utilization rate fluctuations are limited. Profit data indicates that as of November 5, the theoretical profit margin for N330 grade carbon black in Shandong Province was approximately -373 RMB/ton, indicating that the market remains in a loss-making position. Carbon black producers are unable to effectively pass on cost pressures to downstream customers, resulting in a stalemate characterized by "losses, holding prices firm, and sluggish transactions." Downstream tire manufacturers are adopting a price-negotiation stance for new orders, suggesting that the carbon black market will likely continue to trend weakly but stably.
In the tire sector, production schedules decreased month-on-month due to routine maintenance shutdowns at certain enterprises and persistently high raw material costs. For the next cycle, some tire manufacturers plan to further control output or conduct maintenance due to cost pressures. The price negotiation tactics employed by tire manufacturers regarding carbon black directly translate into cautious procurement of ethylene tar by carbon black producers.
Coated pitch, a high-value-added downstream product of ethylene tar, provides limited support based on essential demand. However, the weight of this support within overall demand is insufficient to offset the weakness originating from the carbon black sector.
V. Substitutes: High-Temperature Coal Tar Weakens at High Levels, Reducing Comparative Support
Since late October, the domestic high-temperature coal tar market has experienced a rare period of calm. For instance, in regions such as Shanxi and Tangshan, prices have remained unchanged for three consecutive weeks. This is unusual for a coal tar market where weekly price fluctuations are common. The primary reason is a deadlock between bullish and bearish forces, resulting in a situation where prices struggle to rise or fall.
Ethylene tar and high-temperature coal tar act as substitutes in the carbon black feedstock sector, and their relative pricing directly influences downstream raw material choices. Market forecasts suggest a slight downward trend for high-temperature coal tar. If this anticipated minor decline materializes, the comparative advantage of ethylene tar relative to coal tar will diminish.
VI. Outlook: Focus on Three Key Variables
Three key variables require close monitoring: First, crude oil trends. Substantive developments in U.S.-Iran relations following the Democrats' control of Congress, Iran’s enforcement of policies regarding the Strait of Hormuz, navigation conditions in the Bab el-Mandeb Strait, and sudden disruptions to Red Sea shipping caused by Houthi attacks could all alter the range of oil price movements. Second, transaction volumes for high-temperature coal tar. The extent of any decline in coal tar prices will directly determine the strength of comparative support for ethylene tar. Third, changes in carbon black operating rates. Supply assurance plans during the heating season, along with the pace of maintenance and production controls at tire enterprises, will dictate the actual procurement volume of ethylene tar by carbon black producers. Additionally, domestic unit maintenance, start-ups, and shutdowns, as well as evolving geopolitical situations, are listed as focal points for the next period.
The core logical chain of the market is as follows:
Overall, bearish factors dominate, but supply constraints and essential demand provide a floor that limits further price declines. Currently, downstream buyers are largely purchasing on an as-needed basis, exhibiting a strong wait-and-see attitude. For the next period, ethylene tar prices are expected to see "narrow-range adjustments in mainstream markets" and "weak oscillations in specific regional markets."
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