Weak crude dampens China PE market sentiment

13 May 2010 05:59  [Source: ICIS news]

Polyethylene pelletsSINGAPORE (ICIS news)--Falling crude values over recent weeks have dampened sentiment in China’s polyethylene (PE) market, with local traders liquidating cargoes in fear of further price drops, market sources said on Thursday.

"Chinese traders are in panic mode now. Everyone is trying to get rid of their stocks, even at a loss,” a Singapore-based trader said.

International crude futures have been falling in the past two weeks, mainly due to economic uncertainties triggered by Greece’s debt issues.

Traders in east China said they were trying to sell Middle East linear low density PE (LLDPE) at $1,320/tonne (€1,043/tonne) CFR (cost and freight) China for prompt lifting at the bonded warehouse, making losses of $30/tonne.

These traders said their losses would multiply if they were unable to clear stocks soon, as they expected prices to fall further going forward.

Chinese traders were running out of options, as at $1,320/tonne CFR China, they could only hope to sell to processors in the re-export segment, but not to those in the local segment, they said.

Processors in the local segment would not pay $1,320/tonne CFR China because the same imported material was being offered at lower prices in the domestic market.

Based on a CFR China price of $1,320/tonne, a processor in the local segment would be paying at least CNY11,230/tonne ($1,644/tonne) on an ex-warehouse basis, after including the 17% value added tax (VAT) and 6.5% import duty. But the same imported LLDPE was currently being offered at up to CNY11,100/tonne ex-warehouse in east China, with import duties and taxes included.

Processors in the re-export segment are exempted from paying VAT and import duties for their resin imports.

Discussions in the high density PE (HDPE) market were also sliding, as Chinese traders’ offers of Iranian film and blow moulding grades at $1,200/tonne CFR China ex-bonded warehouse attracted lower buying ideas at $1,180/tonne CFR China.

An Iranian producer said that it tried to sell the same HDPE grades at $1,220-1,225/tonne CFR China for prompt lifting at the bonded warehouse, but that buyers were asking for prices below $1,200/tonne CFR China.

Chinese traders said a global supplier had reduced its LLDPE offer by $40/tonne to $1,380/tonne CFR China for May shipment, in response to the bearish sentiment, but this could not be confirmed with the producer.

Most Asian and Middle East producers were not in the market this week as they typically announce their offers at the end of the month for shipment in the following month.

($1 = CNY6.83, $1 = €0.79)

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By: Chow Bee Lin
+65 6780 4359



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