FocusChina’s PE may have bottomed out on players' restocking activity

23 July 2010 09:47  [Source: ICIS news]

By Chow Bee Lin

SINGAPORE (ICIS news)--China’s polyethylene (PE) prices may have bottomed out this week after falling for two months as importers returned to the market to replenish their inventory levels, though long term outlook was uncertain, market sources said on Friday.

Different PE grades were traded at $980-1,200/tonne (€764-963/tonne) CFR (cost and freight) China for the week ended 16 July, which were 15-18% lower than prices assessed two months ago, ICIS data showed.

"Many Chinese plastics processors have to restock as they have not been buying much since mid-May, when prices started plunging,” an Asian PE producer said.

The replenishment of inventory levels was partly driven by anticipation that demand from the packaging and agricultural application sectors would pick up significantly over the next three months, in the run-up to the typical high consumption season at the end of the year, Chinese traders said.

Stronger crude futures prices and gains in the linear low density PE (LLDPE) futures traded on the Dalian Commodity Exchange (DCE) also boosted buyer sentiment, the traders said.

September LLDPE futures contract closed at yuan (CNY) 9,540/tonne ($1,407/tonne) on 22 July, CNY200/tonne higher from the previous day’s settlement price.

Some Chinese traders and Asian producers were expecting the prices to stage a strong rebound in the next two weeks if upstream crude prices strengthened further.

Market players were also expecting ethylene feedstock prices to stage a firm rebound.

Asia’s ethylene prices had hit nine-month low levels of $860-880/tonne CFR (cost and freight) northeast Asia and $795-820/tonne CFR southeast Asia last week, after falling in the past weeks, according to ICIS.

However, other Chinese traders said that any price uptrend might be short-lived as downstream demand was expected to remain weak due to government measures aimed at cooling the domestic economy.

China's June-quarter gross domestic product (GDP) grew 10.3% year on year representing a 1.6 percentage point decline from an 11.9% growth recorded in the first quarter with analysts expecting the pace growth to further slow as the year progresses.

Meanwhile, Chinese importers and key producers in Asia and the Middle East were expected to start active discussions next week for August shipments, sources added.

China imported 3.25m tonnes of PE in the first five months this year, 7.3% lower year-on-year, according to data from China Customs.

($1 = €0.78/ $1 = CNY6.78)

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By: Chow Bee Lin
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