FocusHeavy trading and high prices for Chinese polyolefins

22 April 2009 08:40  [Source: ICIS news]

By John Richardson

SINGAPORE (ICIS news)--More than 52m tonnes of linear low density polyethylene (LLDPE) film grade have been traded on the Chinese futures market so far this month – in excess of double the global annual demand for the polyolefin.

The volume traded on the Dalian Commodity Exchange (DCE) this month up until 21 April was 52.4m tonnes, according to the DCE website. This compares with only 166,330 tonnes during the same period last year and represents a massive increase, most of which has been in the last few weeks.

The vast majority is paper trades, as global demand for LLDPE totals less than 24m tonnes/year, according to Paul Hodges, consultant with UK-based International e-Chem.

Traders in all grades of polyolefins – as well as producers and buyers seeking to hedge their positions – are playing the market, said a Singapore-based polyolefins trader.

“The financial players are also involved, who know little about plastics. They are trading off financial models,” said the trader.

Nobody knows to what extent the DCE is influencing the physical market, although there are worries that speculation in general, both in physical and paper trades, has contributed to the rise in pricing.

LLDPE was assessed at $1,050-1,100/tonne (€809-847/tonne) CFR China on 17 April, according to global chemical market intelligence service ICIS pricing. This was unchanged from the previous week, but was as much as $110/tonne higher than four weeks earlier.

High density polyethylene (HDPE) film grade was also at $1,050-1,100/tonne CFR China and raffia polypropylene (PP) at $1,020-$1,070/tonne CFR China. These prices were again unchanged from the previous week, but PP was up to $170/tonne compared with mid-March.

Domestic prices in China softened in the week ending 17 April by between CNY300-1,000/tonne ($44-146/tonne), according to China chemical market intelligence service ICIS chemease.

“I don’t understand why prices are where they are at. If you had told me at the start of the year that polyethylene (PE) and PP prices would be more than $1,000/tonne, I wouldn’t have believed you,” the trader said.

Big refinery operating rate cuts by Sinopec and PetroChina in the fourth quarter last year and the first quarter of this year resulted in a naphtha shortage that had driven up petrochemical pricing in general, said a markets analyst with a major polyolefin producer.

Extensive cracker and polyolefin operating rate cuts also took place, with many new start-ups delayed in the Middle East, the analyst said.

“This led to a supply gap and a great deal of speculation. I don’t see the current demand fundamentals sustaining the price hikes as plastics processors in China are only running at around 60-80%.”

The supply gap has been filled by imports with an apparent big rise in shipments from the West.

More than 600,000 tonnes of PE was shipped to China in February – the biggest monthly volume since 2005, according to traders contacted by ICIS pricing.

A similar volume is expected for March, with huge percentage increases in imports recorded by China Customs for all grades of PE and PP in January-February.

North American and European producers are reported to have fixed significant volumes to China, with US PE sales supported by the low cost of Gulf Coast ethane versus naphtha.

But whether further fixtures will be made for arrival beyond April was not immediately clear.

China prices have been relatively very high. To be positive, it’s important to note that end-user demand has definitely recovered by a lot and the government’s economic stimulus package is helping,” said a Western producer.

“If China’s economic recovery gathers speed – and the signs look good – the markets could remain healthy, despite what seems to be a big increase in speculation.”

($1 = €0.79/$1 = CNY6.83)

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By: John Richardson
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