Chemical Distillate: PE Still a Big Question Mark; Near-Term Lithium Fundamentals Improving

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Chemical Distillate

PE Still a Big Question Mark; Near-Term Lithium Fundamentals Improving

14 Aug 2026 15:45:21 ET

Patrick Cunningham AC

CHEMICAL COMMENTARY

Alexander Yi

Commodity chemicals (+4% W/W) outperformed both specialty chemicals (-2%

W/W) and the S&P 500 (+0.5% W/W) this week, supported by Brent crude prices +1-212-816-4220

recovering to nearly $90/bbl. According to market sources, combined polyethylene

Rachel Lee

(PE) and polypropylene (PP) inventories held by Sinopec and PetroChina declined

~2% W/W to ~610 kt and were estimated to be ~21% lower Y/Y. This datapoint

supports LYB's view that tightening Chinese inventories could lead China to return

to a net importer position, helping limit further downside in the PE market during

3Q. That said, visibility into inventory levels across converters, OEMs, and retail

channels remains limited. In addition, our discussions with Chemical Market

Analytics experts suggest PE pellet inventories currently stand at roughly 140-150

days, compared with a normalized level of ~100 days. At current demand use rates,

CMA estimates the industry would reduce inventories by only ~30 days over the

course of a year, implying that the market would still be under excess inventory

position.

Notably, lithium spot prices have firmed up recently. Shanghai Metals Market

(SMM) reports a sustained upward trend in lithium, with futures rising to

~147,100-152,400 yuan/mt ($21.8k/t - $22.6k/t), rebounding from ~135,600144,300 yuan/mt ($20.1k/t-$21.4k/t) pricing levels the week prior. The recent

increase in spot prices have been primarily driven by concentrated maintenance

activity in July and August, while downstream demand continued to grow M/M.

SMM’s analysis have indicated near-term lithium carbonate inventories have been

significantly drawn down, with the pace of inventory destocking accelerating.

While we continue to expect volatility on near-term prices with progress on the

Jianxiawo mine restart and Zimbabwean ore arrivals, we take this as a signal that

lithium supply/demand fundamentals are improving. As we’ve highlighted in our

recent analysis on the strong correlation between ALB’s share performance vs

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