Narrow-range Pressure Amid the Confluence of Cost Collapse in Ethylene Tar and Weak Demand

1. The Multi-Layered Dynamics Behind Market "Stability"

Recently, the Chinese ethylene tar market has exhibited a typical pattern of "superficial stability masking underlying pressure." On the surface, prices have fluctuated slightly but remained generally stable this week. However, when viewed against the backdrop of a sharp drop in international crude oil prices, continued losses for downstream carbon black producers, and weakening expectations for the substitute product (high-temperature coal tar), this apparent "stability" warrants close scrutiny.

During this period, the international crude oil market experienced one of its most significant adjustments of the year. The magnitude of the decline was extreme by recent standards, driven not by sudden shifts in supply-demand fundamentals, but by a rapid reversal in geopolitical expectations. Following the U.S. Democratic Party's victory in the midterm elections and their regained control of both houses of Congress, the market anticipated a significant reduction in the risk of large-scale military conflict between the U.S. and Iran. Consequently, the geopolitical risk premium previously embedded in oil prices was quickly squeezed out.

As a byproduct of naphtha cracking units producing ethylene, ethylene tar costs are inherently linked to crude oil prices. The substantial drop in crude oil implies weakened theoretical cost support for ethylene tar, marking it as the most critical bearish variable for the market this week. This divergence—where costs fall while prices remain stable—must be analyzed through the lenses of rigid supply, comparative pricing with substitutes, and essential downstream demand.

2. Cost Side: Squeeze of Geopolitical Premium Weakens Cost Floor Logic

The core event on the cost side this week was the movement in international crude oil prices. With the Democratic Party winning majorities in both the House and Senate and regaining control of Congress, the market expects a de-escalation of U.S.-Iran tensions, leading to a noticeable reduction in concerns over supply risks. The decreased likelihood of large-scale conflict after the midterms has weakened the geopolitical support for oil prices.

For ethylene tar, the transmission of falling crude oil prices occurs via two pathways:

1. Direct Cost Transmission: Lower expected raw material costs for naphtha cracking units reduce the cost floor for ethylene tar as a byproduct.

2. Sentiment Transmission: Increased market wait-and-see attitudes lead to cautious purchasing behavior among downstream buyers.

3. Supply Side: Minimal Changes in Unit Operations

There have been no new unit startups recently. Domestic ethylene tar supply is entirely dependent on the operating rates of existing ethylene units. In this context, the impact of feedstock lightening is evident, maintaining a relatively tight supply situation.

4. 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 end-use market is tires. Currently, the outlook for both products is unfavorable.

Carbon Black: Sample enterprises reported an operating rate of 60% this period. As the heating season approaches, some companies have supply assurance plans, leading to a scenario where large plants maintain stable operations while small plants run at low loads. Overall operating rate fluctuations are limited. Regarding profitability: As of November 5, the theoretical profit for N330 carbon black produced by factories in Shandong was approximately -373 RMB/ton, indicating continued industry-wide losses. Carbon black producers cannot effectively pass cost pressures down the chain, resulting in a stalemate characterized by "losses – price holding – sluggish transactions." Downstream tire manufacturers are adopting a price-negotiation stance for new orders, suggesting that the carbon black market will likely continue to operate weakly and stably.

Tires: Affected by routine maintenance shutdowns at certain companies and high raw material costs, production scheduling decreased month-over-month. It is expected that some tire enterprises will continue to implement production controls or maintenance schedules due to cost pressures next period. The price-negotiation attitude of tire manufacturers towards carbon black directly translates into cautious procurement of ethylene tar by carbon black producers.

While coated pitch, a high-value-added downstream product for ethylene tar, provides limited support through essential demand, its weight in overall demand is insufficient to offset the weakness in the carbon black sector.

5. Substitutes: High-Temperature Coal Tar Remains High but Weak, Diminishing Comparative Support

Ethylene tar and high-temperature coal tar act as substitutes in the carbon black feedstock sector; their relative price comparison directly influences downstream raw material selection. This week, the price of high-temperature coal tar in Shandong stood at 5,560 RMB/ton, remaining at a high level. However, market forecasts suggest a slight downward trend for high-temperature coal tar. If it declines as expected, ethylene tar’s comparative advantage over coal tar will diminish.

6. Outlook for Next Period: Focus on Three Key Variables

Three key variables require close monitoring for the next period:

1. Crude Oil Trends: Substantive developments in U.S.-Iran relations following the Democratic Party's control of Congress, Iran’s policy implementation regarding the Strait of Hormuz, navigation conditions in the Bab el-Mandeb Strait, and sudden disruptions to Red Sea shipping by Houthi attacks could all alter the range of oil price movements.
2. High-Temperature Coal Tar Transactions: The magnitude of its potential decline directly determines the strength of comparative price support for ethylene tar.
3. Carbon Black Operating Rates: Supply assurance plans during the heating season, along with maintenance and production control rhythms of tire enterprises, will dictate the actual volume of ethylene tar procured by carbon black producers. Additionally, domestic unit maintenance, startup/shutdown activities, and evolving geopolitical situations are also noted as market focus points.

The core logical chain for the next period is as follows:

1. International crude oil faces downside risks, weakening cost-side support.
2. Expectations of a slight decline in the substitute, high-temperature coal tar, further weaken comparative price support for ethylene tar.
3. The carbon black market operates weakly and stably, with downstream tire manufacturers negotiating prices, leading to cautious procurement by carbon black firms.
4. Only coated pitch maintains decent essential demand, providing limited support for high-quality supplies.

In summary, bearish factors dominate. However, supply constraints and essential demand provide a floor, limiting the extent of price declines. Currently, downstream buyers are mostly purchasing based on immediate needs with a strong wait-and-see attitude. For the next period, ethylene tar prices are expected to see "narrow adjustments in mainstream markets" and "weak oscillations in regional markets."