FocusChina PE import market stable near term

30 April 2008 05:29  [Source: ICIS news]

By Prema Viswanathan 

SINGAPORE (ICIS news)--China's polyethylene (PE) market is expected to be stable in coming weeks as pressure to raise prices from surging feedstock costs and low inventories is offset by resistance from end users facing a margin squeeze, sellers and buyers said on Wednesday.

Ahead of the Labour Day holidays starting on 1 May, trade slowed in China's polymer market.

Import prices managed to hold firm this week, having risen by $10-30/tonne (€6-19/tonne) last Friday from a week earlier, to $1, 600-1760/tonne CFR (cost and freight) China, on the back of high crude, naphtha and ethylene costs.

Buying sentiment for linear low density PE (LLDPE) was quite strong, due to unusually low inventories among Chinese buyers and strong demand from the agricultural film application segment.

The substitution of low density PE (LDPE) with LLDPE, due to persistent shortages in the LDPE market, also boosted demand.

These positive factors, for the time being, outweighed the negative sentiment triggered by the ban on thin PE bags which would come into effect on 1 June, and the credit control measures implemented by local banks, suppliers and traders said.

"In any case, the effect of the ban on PE bags less than 25 microns in thickness will be shortlived, going by the trend seen in other countries where such bans have been implemented," a Hong Kong-based trader who sells into China said.

"Eventually, PE consumption will increase as thicker bags come into vogue," he added.

Credit control measures initiated by the Chinese government to stem overheating of the economy, an increase in minimum wages for industrial workers, and strengthening of the yuan had increased costs for converters, an end user said.

The economic downturn in the US - a key export market for Chinese plastic goods - would also cause consumption of PE by export-oriented processors to decline, he said.

Speculation about the possible withdrawal of the export tax rebate on polymers and finished goods also dampened sentiment somewhat, a trader said.

"However, this will only affect exports. Domestic demand continues to be strong ahead of the Beijing Olympics, and this will compensate for any downturn in export demand," he said.

In the high density PE (HDPE) market, blow moulding and injection grades witnessed robust demand, and prices of these grades caught up with those of HDPE film grade. Demand for HDPE film, however, languished due relatively high inventories.

"We are facing considerable customer resistance in China to offers higher than $1,600-1,610/tonne. However, our own stocks are limited, so we would rather wait for demand to rebound," a Middle East supplier said. 

Sentiment in the HDPE film market was also adversely affected by low priced US cargoes offered at $1,560-1,570/tonne.

"Although the volumes being offered are not significant enough to be reflective of the general market trend, the offers do tend to dampen buying sentiment," a second trader said.

($1 = €0.64)

For more on PE visit ICIS chemical intelligence.

Jeremiah Chan contributed to this article.

By: Prema Viswanathan
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