After Oil Prices Skyrocket, On-the-Ground Investigation of Dongguan's Hundred-Billion-Level Plastic Trading Hub

After the chaos at the beginning of the month with “plastic rush” and “three-hour traffic jams,” Dongguan Zhangmutou Plastic City, a major plastic trading hub with an annual transaction volume of nearly 100 billion yuan, has returned to calm.

On March 18-19, Shanghai Securities Journal reporters visited the site and observed that while traffic in the Plastic City has returned to normal, oil prices are still fluctuating at high levels, and merchants remain uncertain about the industry’s future direction.

Dongguan Zhangmutou Plastic City. (Photographer: Kong Lingyi)

Dongguan Zhangmutou Plastic City. (Photographer: Kong Lingyi)

Traffic congestion in Plastic City was not due to “strong downstream demand”

“Early March saw a surge in oil prices, and many industry peers were swapping goods within the market. Hesitation to sell spread, warehouse stocks fluctuated heavily, and limited unloading manpower led to several days of continuous traffic jams,” recalled Wang Bin (pseudonym), a trader of plastic raw materials.

However, Wang Bin repeatedly emphasized that the congestion was caused by some taking the opportunity to “speculate on materials,” not because of strong downstream demand.

“Speculation” quickly drove up the prices of plastic raw materials. Several traders and plastic modification processing companies told reporters that the prices of mainstream plastic raw materials had increased by 3,000-4,000 yuan per ton compared to before the New Year.

“After twenty years in the plastic industry, I’ve never seen raw material prices fluctuate so violently,” Wang Bin said.

Before this round of price fluctuations, raw material prices had been low, and merchants generally hesitated to stockpile. During the price surge, some midstream industry chain traders had to purchase at high prices to fulfill existing orders.

“Upstream raw material prices rose, but when we sell our modified products to downstream clients, we can’t pass on the price increase,” said Li Fang (pseudonym), who specializes in customized plastic modification. “This ‘hot upstream, cold downstream’ pattern stems from the bargaining power disparities across the industry chain. Upstream petrochemical companies raise prices with their monopoly power, while downstream factories struggle to increase prices in the consumer market. Midstream modification companies bear the brunt of price squeezing.”

Li Fang’s peer, Yang Lan (pseudonym), summarized with a wry smile: “The most anxious are those who have signed orders but have no stock to deliver—they can only choose between ‘credit ruin’—terminating contracts and losing clients—or fronting money to supply, toughing it out.”

Traders face similar dilemmas: those with stock face weak downstream demand and must bear storage costs and the risk of falling prices; those without stock miss out on potential price increases. “If the goods can’t be shipped, it’s their own money at risk. It’s very risky, and there’s no way to save themselves,” admitted trader Zhou Dan (pseudonym).

This dilemma is not unique in the industry. On social media, some plastic modification practitioners commented: “Our boss took a 10 million yuan order from a major client, but at current prices, we’d lose 1 million yuan if we produce directly. If we quit, we have to pay hundreds of thousands in breach penalties, and the big client might leave.”

Another industry peer said: “Our warehouse stock can only last until April; by May, it’s a bit uncertain.”

Waiting for the market to stabilize

During interviews with merchants in Plastic City, most remained calm about the sudden raw material price fluctuations.

“Business always has ups and downs. We didn’t make money this time, but we’ll make it back next time,” said a trader.

However, when discussing the future, most merchants expressed confusion and helplessness—“No one knows how this situation will develop,” “There’s no good way to respond to price fluctuations,” and “We can only pray that the conflict ends soon and the market returns to normal.”

What worries merchants even more is the sluggish downstream demand. An industry insider told reporters: “If raw material prices rise and end prices can also increase, and consumers have the purchasing power, it’s not a big problem; but if the transmission downstream is not smooth, with upstream prices rising and downstream demand stagnant, that’s terrifying.”

“Business has been tough these past few years, and profits are not great,” Wang Bin said. He is contemplating a longer-term strategy, planning to shift from trading to a technology-based enterprise.

Despite the current difficulties, interviewees remain optimistic about the long-term prospects of the plastic industry.

“Plastic is the ‘industrial rice’—every industry needs it, so the industry will not decline,” Li Fang said. “I hope we can get more foreign orders and sell more products. More exports mean more turnover, which benefits everyone.”

In fact, it’s not only small and medium enterprises in Dongguan Zhangmutou Plastic City caught in the price turmoil; listed companies related to the industry chain are also affected.

Wu Di, general manager of Jinfeng Technology, said that the Middle East conflict has made everyone realize that relying solely on oil for the global materials industry carries significant supply risks. To address environmental and low-carbon issues, as well as reduce dependence on oil, the company is strategically investing in bio-based materials for the long term.

Regarding the price fluctuations and unstable supply caused by the war, Wu Di suggested that the most rational approach for both supply and demand sides at this stage is to purchase and produce as needed, objectively accept rising costs; if costs decrease due to changing circumstances in the future, they should accept the reduction accordingly.

“The key is to maintain a rational mindset and return to industry fundamentals—manufacturers should focus on the basics of raw material procurement, processing, and product sales, without being swayed by market sentiment,” Wu Di said.

Author: Kong Lingyi