China’s LLDPE futures may fall through H2 August on lower cashflow

10 August 2010 13:23  [Source: ICIS news]

SINGAPORE (ICIS)--China’s linear low density polyethylene (LLDPE) futures on the Dalian Commodity Exchange (DCE) may fall through the second half of August due to lower cashflow caused by tighter local fiscal policy, futures brokers said on Tuesday.

“We expect capital inflows in the Chinese commodity markets to fall going foward as we expect the government to tighten monetary policy to counter inflation,” research director of Wanda Futures, Chen Wang, said in Mandarin.

The Chinese economy was expected to experience slower growth and inflationary pressure in the rest of the year, said Wang.

“We estimate the July consumer price index (CPI) to exceed the government’s full-year target of 3% to hit 3.2%,” Wang said. “We also expect the government to raise interest rates before the year ended,” he said. China’s official CPI data was expected to be announced tomorrow, he added.

LLDPE futures have been rising since mid-July because of speculation that the Chinese government would maintain a loose fiscal policy to ensure domestic economic growth, but the market rally lost its momentum middle of last week as news of the high July CPI dashed hopes of a loose fiscal policy, said Wang.

The most actively traded January LLDPE contract stabilised at a closing price of yuan (CNY) 10,535/tonne ($1,556/tonne) on Tuesday, after falling continuously in the second half of last week, according to DCE data.

LLDPE futures were expected to be weak from mid August and throughout September because large quantities of imports had been booked for arrival during this period, said Yongan Futures Broker’s chemical and energy analyst, Liang Kong.

“High futures prices in end July and early August had led many importers to book cargoes for August and September arrival, taking advantage of the arbitrage opportunities offered by the futures market,” said Kong.

The heavy arrival of imports might weigh down sentiment in both the physical and futures PE markets, he added.

But any downward correction on the LLDPE futures market might not be drastic because sentiment in the physical market remained firm,” said Hong Bin Ye, an analyst of China International Futures (CIFCO).

“We believe demand from the agricultural film application sector will support LLDPE physical and futures trades in September and October,” said Ye.

“We don’t expect the January LLDPE futures contract to fall below CNY10,200/tonne in August,” he added.

Physical spot LLDPE trade was assessed at $1,140-1,180/tonne CFR (cost and freight) China for the week ended 6 August, $70-80/tonne higher from the previous week, according to ICIS.

($1 = CNY6.77)

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By: Chow Bee Lin
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