Buy-sell gap may hamper China polyolefins trade

17 April 2008 03:12  [Source: ICIS news]

By Chow Bee Lin

SHANGHAI (ICIS news)--A widening gap between buy and sell ideas is expected to hamper China’s polyolefins trade in May, and factors behind it is likely to be one of the key themes at the Chinaplas exhibition starting on Thursday, Chinese traders said.

Asian and Middle East producers had not announced offers for May shipment yet, but the growing difference between the buy-sell price ideas was already evident in the discussions for April shipments.

Middle East and Asian producers’ initial offers for low density polyethylene (LDPE) at $1,755-1,770/tonne (€1,106—1,115) CFR (cost and freight) China for April shipment were met with strong buyer resistance.

This led one Asian producer to cut its offer by $20/tonne to $1,750/tonne but the firm said buying interest was weak even at the lower price as buying ideas were still $20-30/tonne lower.

Soaring raw material prices and their impact on the plastics processing sector is hence expected to be among the key issues discussed at this year’s ChinaPlas - an annual exhibition which runs from Thursday to Sunday in Shanghai.

“Our customers will probably complain that PE prices are too high and that their margins are squeezed,” a Middle East PE producer said.

Any rumbling from China’s plastics processors would be comprehensible considering the plight they were in now, a second Middle East PE producer said.

“Chinese processors are facing an increasingly difficult business environment characterised by higher labour costs, a credit crunch, less export incentives and the prospect of weaker demand for Chinese plastic product exports due to the stronger Chinese yuan currency against the dollar,” he said, adding that resin import interest was weak as a result.

China’s new policy which bans the production of plastic bags thinner than 0.025mm and the free distribution of plastic bags, starting from 1 June, had also dampened buying interest for film grade high density PE (HDPE), traders said.

HDPE is a key raw material used in plastic bags.

Most Asian resins producers are expected to try driving home the message that high naphtha and monomer feedstock prices supported further resin price hikes for May shipment, traders said.

They added that some Middle East producers would likely cite tight supply as a bullish factor for film grade LDPE and linear low density PE (LLDPE).

Spot ethylene and propylene feedstock prices surged $80-100/tonne last week to $1,350-1,380/tonne and $1,350-1,400/tonne CFR northeast Asia last week, as supply tightened due to regional cracker turnarounds, according to according to global chemical market intelligence service, ICIS pricing.

But in their push for higher prices, many resins suppliers would be mindful of the need to maintain their market share in China before competition heats up in the second half of the year, when new Middle East supplies start coming on stream, a Middle East PE producer said.

Over 10m tonnes of new PP and and PE capacities are scheduled to come on stream in the Middle East between now and the first half of 2009, according to industry sources.

($1 = €0.63)

By: Chow Bee Lin
+65 6780 4359

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