China’s local PP, PE jittery as producer price listing looms

15 April 2009 09:58  [Source: ICIS news]

SINGAPORE (ICIS news)--China’s domestic polyethylene (PE) and polypropylene (PP) markets are jittery on speculations that local major Sinopec may switch from spot to list pricing in the next few days, local distributors said on Wednesday.

"I think the producer is likely to start selling on list prices soon because its ex-factory prices are much higher than distributors’ retail prices, and this discourages the [first-tier] distributors from buying," said a Sinopec distributor in Hebei province in northern China.

Sinopec generally starts selling on list prices when most of its distributors decline to take cargoes at prevailing spot prices. Hence the switch to list prices indicates that buying interest is weak and that prices could fall further, the distributors said.

Concerns that prices could fall further had made the market jittery as sellers were unsure if they should immediately off load their stocks and buyers were unwilling to buy new cargoes.

Domestic prices of most PP and PE grades fell by yuan (CNY) 50-600/tonne ($7.3-87.8/tonne) in northern, southern and eastern China on Tuesday, compared with last Friday, according to China chemicals market intelligence service ICIS chemease.

Domestic retail prices of locally-produced and imported PP and PE started falling in the middle of last week when crude values fell below the $50/bbl mark, local distributors said.

First-tier distributors buy material from Sinopec on an ex-factory basis and sell the product in the retail market on an ex-warehouse basis.

"For instance, distributors’ retail prices for linear low density PE are around CNY9,200-9,300/tonne ex-warehouse in Hebei now, but the producer’s ex-factory price is tagged at CNY9,900/tonne," he said.

"The CNY600-700/tonne gap between the ex-factory and retail prices poses too much risk for distributors," he added.

Transactions based on list prices are adjusted retrospectively at a time determined by the producer, local distributors said.

($1= CNY6.83)

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By: Chow Bee Lin
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