05 August 2010 11:44 [Source: ICIS news]
SINGAPORE (ICIS)--China-based importers of linear low density polyethylene (LLDPE) have now opted to sell their cargoes in the domestic spot market for greater profit as they take advantage of the arbitrage window resulting from rising domestic LLDPE prices, market players said on Thursday.
“There has been a surge of cargoes from tax-bonded warehouses in the domestic spot market this week,” said a source.
Importers would normally sell a major percentage of their cargoes to export-oriented downstream producers, which are exempt from import duties, traders said.
However, the recent surge in domestic Chinese LLDPE values, which was the result of price hikes by producers that had low inventory levels, has led importers to shift their focus to the domestic market, sources said.
“LLDPE of Iran origin was traded at $1,150/tonne (€874/tonne) 90-day LC (letter of credit) ex-bonded warehouse on [3 August], but the same material could currently be sold at yuan (CNY) 10,000/tonne ($1,477/tonne), which was the equivalent of $1,195/tonne 90-day LC,” said a trader, who was speaking in Mandarin.
“This makes domestic sales more profitable for importers, even if they need to pay duty,” added the trader.
Domestic LLDPE prices were currently above CNY10,000/tonne EXWH (ex-warehouse), up by CNY1,200/tonne from mid-July, ICIS data showed.
Domestic prices have risen faster than those on a cost and freight (CFR) China basis, because of producers’ price hikes and the upcoming high production season, market players said.
Furthermore, importers have had fewer export inquiries this week as traders were eager to cut their inventories and secure profits on fears that prices would soften in the near term, players added.
Demand from the downstream packaging sector was reported to be modest, as most export-oriented converters had sufficient inventories, which could sustain their needs until the next shipment of cargoes arrived in late August, players said.
However, the current arbitrage window could be short-lived, sources said, as demand was not strong enough to support further price hikes.
($1 = €0.76/$1 = CNY6.77)
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