FocusChina LLDPE futures may fall on profit-taking activity

07 September 2010 11:46  [Source: ICIS news]

SINGAPORE (ICIS)--Linear low density polyethylene (LLDPE) futures prices in China may register a downward correction in the coming weeks when investors close out their positions to take profits, China-based futures brokers said on Tuesday.

“LLDPE futures have been commanding very high premiums over the physical market, which has been lagging behind the futures trade in terms of value, so we believe futures prices are due for a correction in the near term,” said Liang Kong, a chemical and energy analyst with Yongan Futures Brokerage.

The most traded January contract on the Dalian Commodity Exchange (DCE) was priced at yuan (CNY) 10,700/tonne ($1,576/tonne) on Tuesday afternoon, according to DCE data.

Locally produced and imported LLDPE was mostly selling at around CNY9,700-9,800/tonne EXWH (ex-warehouse) in the domestic physical market, according to local distributors.

The CNY900-1,000/tonne gap between the futures and physical trades was way above the typical differential of around CNY400-500/tonne, Kong said.

Any downward correction in the futures trade would take prices to more realistic levels, said Jack Hua, a sales assistant for petrochemicals with CITIC Newedge Futures.

“A downward correction will be good because it takes the LLDPE futures market closer to the physical market fundamentals,” said Hua.

The physical market had been largely stable in the past two weeks, although futures prices had been rising amid high volatility, as physical market prices had been capped by weak fundamentals, he said.

The physical LLDPE market had been plagued by weak demand from the downstream agricultural and packaging film application sectors, according to China-based traders.

Downstream demand had been weak because, as part of the country’s move towards reducing its carbon emissions, many plastics processors had to shut their factories for maintenance or cut production rates based on restrictions on electricity consumption, the traders said.

($1 = CNY6.79)

For more on LLDPE visit ICIS chemical intelligence
Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
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By: Chow Bee Lin
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