China’s LLDPE futures trade boosts physical market sentiment

05 August 2009 12:50  [Source: ICIS news]

(Recasts lead)

SINGAPORE (ICIS news)--China’s buoyant linear low density polyethylene (LLDPE) futures trade has boosted sentiment in the physical LLDPE market, as local traders try to cash in on the wide price gap between the two, Chinese traders said on Wednesday.

Based on the November LLDPE futures contract traded on the Dalian Commodity Exchange (DCE) – the most traded contract on the DCE on Wednesday – the gap between futures and physical spot prices was up to yuan (CNY) 1,155/tonne ($169/tonne), according to a Beijing-based trader.

“A speculator could buy a cargo in the physical market now to cover a November position on the futures market, because the price gap more than covers his holding cost,” he said in Mandarin.

The holding cost includes storage, delivery and interest charges for owning a physical cargo until it is delivered to cover a position on the futures market.

November LLDPE futures on the DCE closed on Wednesday at yuan CNY11,755/tonne, with 847,210 tonnes traded, according to DCE data.

In the physical spot market, LLDPE was selling at around CNY10,600-11,000/tonne ex-warehouse in northern China.

With LLDPE offered at $1,300/tonne CFR (cost and freight) China for September shipment, this works out to around CNY11,400/tonne ex-warehouse, local traders said.

Around 24,980 tonnes of LLDPE has been delivered since the futures launched in 2007, of which 64% was delivered in the first seven months of this year, according to DCE data.

($1 = CNY6.83)

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By: Chow Bee Lin
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