12 February 2010 16:18 [Source: ICIS news]
By John Richardson
One view, already well rehearsed in previous Insight pieces, is that this is further evidence of a speculative bubble that will pop as a result of tighter bank lending in
There is even greater pressure on the “bubble” following
The optimistic opinion is that widely reported high inventory levels will be quickly absorbed when the Chinese Lunar New Year holidays come to an end (the official holidays in
High stocks are being reported both in bonded warehouses (for imported US dollar-priced material) and in other warehouses (for locally, yuan-priced product).
“Around 1.3m-1.4m tonnes of polyolefins were delivered to
This suggests that there might be inventory pressures in
So what drove reports of in the context of what is already going to be a stellar year for shipments to
“In early November, linear low density polyethylene (LLDPE) prices for physical cargoes were below those on [the]
“The stronger futures pricing in early November reflected crude increasing to around $82/bbl and forecasts from banks that it would reach $95-100/tonne in 2010,” he added.
“It was also down to confidence that Chinese growth would remain very robust in 2010.
“[The] Dalian is used as a proxy for the direction of all physical polyolefin pricing, and so we saw a lot of interest from traders in acquiring all grades of PE and polypropylene (PP) to ship to China, after this early November turning point.”
Low density PE (LDPE) was also buoyed by very tight supply due to outages, he said.
The chart below, based on data from ICIS pricing, illustrates how a price rally in physical markets began in November, continued into December and tapered off in late January and early February.
This analysis of what drove increased imports and prices in November-January was supported by a source with a major global polyolefin producer.
“It’s easy to assume high inventories in
“On the growth side, yes, measures have already been taken to cool the property sector. There might also be a little less easy money available to fund speculation and discretionary spending on consumer goods.
“But I think this will be replaced by further strong consumption growth in less-developed regions, and huge government infrastructure spending throughout
“Infrastructure projects launched last year have yet to be completed with more spending on roads, railways etc still to come.”
The Singapore-based trader and the source with the producer both point to the absence of panic among the Chinese traders and distributors holding high stocks.
“Nobody is in a rush to liquidate. The reason is that despite the credit tightening, possible US restrictions on proprietary trading by banks and more anxiety over European government debt problems, polyolefin pricing has only edged down since late January,” said the trader.
Prices for several grades of PE in
Both PE and PP pricing were reported to be stable for the week ending 12 February as the Asian market was closed for the Lunar New Year holidays.
One might well ask what on earth the connection is between a possible
“The link is that on a day-to-day basis at least, sentiment in wider commodity and equity markets is playing an increasing role in what people are prepared to pay for polyolefins,” said the producer.
Low producer inventories outside
“Producers have managed their stocks so well that they can afford not to budge on what is pretty much theoretical pricing at the moment, as the market is so quiet ahead of the [Lunar New Year].”
Concurring with the producer’s view on continued strong economic growth in
“I think we will see these high polyolefin inventories easily absorbed as Chinese buying picks up ahead of the peak season for manufacturing finished goods, which occurs during the summer months.”
Let’s hope for everyone’s sake that he proves to be right, as further strong support from
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