Dalian LLDPE futures rise 4.9% on assurance of easy credit

03 August 2009 14:16  [Source: ICIS news]

SINGAPORE (ICIS news)--Linear low density polyethylene (LLDPE) futures on the Dalian Commodity Exchange (DCE) rose 4.9% on Monday, partly due to the Chinese government’s assurance that its expansionary monetary policy would remain in place in the near term, industry sources said on Monday.

“The Chinese government said three times last week through different mediums that it would maintain a relaxed monetary policy. That assurance boosted investor confidence,” said a source at Shanghai Zhongqi, a Chinese futures brokerage.

“It reinforces investors’ belief that cash will continue to be easily accessible, and that commodity prices will rise in the coming months due to inflationary pressure caused by the easy credit,” the source said.

September contracts closed at yuan (CNY) 11,565/tonne ($1,691/tonne) on Monday, up CNY540/tonne from Friday’s settlement price, according to data published on DCE’s website.

“Ample cash in the Chinese economy is definitely one of the price drivers,” said a source at Chinese futures brokerage International Futures.

Some investors also believed that LLDPE futures would rise further in the coming months, as they held the view that the commodity was underpriced in the domestic physical market, the International Futures source said.

“Prices in the domestic physical market fell sharply last year when the global financial crisis triggered panic selling. The price recovery process is still ongoing,” the source said.

Asian LLDPE was priced at around $1,260/tonne CFR (cost and freight) China, so locally produced material should be selling at CNY12,000/tonne ex-warehouse, instead of its current levels of less than CNY11,500/tonne ex-warehouse, the source added.

Positive economic data also helped push LLDPE futures prices higher, said a source at Zhejiang Province Yongan Futures Broker.

“All types of commodity futures have risen in China today, mainly due to the positive economic data released so far,” the broker source said.

“The futures market, regardless of the product, will continue to rise as long as the China economy continues to recover,” the source added.

($1 = CNY6.84)

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By: Chow Bee Lin
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