10 December 2010 03:55 [Source: ICIS news]
By Chow Bee Lin
SINGAPORE (ICIS)--China’s polyethylene (PE) and polypropylene (PP) prices may rise at the end of December on restocking activity before levelling out in early January, industry players said on Friday.
Transactions had been slow in recent weeks because many importers were concerned that an imminent interest rate hike aimed at curbing inflation would trigger a downtrend in commodity prices, Chinese traders said.
But any downtrend resulting from the interest rate hike was likely to run its course within days, as the lower prices would lead buyers back to replenish stocks and the restocking activity would push prices higher, they added.
The interest rate hike was widely expected to be announced sometime in 10-20 December, they added.
PE and PP might trade higher at the end of December when negotiations for January shipments begin, but the increment in PE prices might be limited if import costs stayed above the retail prices, the Chinese traders said.
The import costs of most PE grades were currently above their retail prices, they said.
For example, imported linear low density PE (LLDPE) was selling below yuan (CNY) 11,000/tonne (US$1,653/tonne) EXWH (ex-warehouse) in the retail market, about CNY500/tonne lower than the average import costs of December cargoes, they said.
Any attempt by suppliers to raise prices would face strong buyer resistance if the import prices were much higher than the retail prices, they added.
However, there was room for PP import prices to rise as the import costs and retail prices were either on par or just $20/tonne (€15/tonne) apart, depending on the grades, the Chinese traders said.
PP prices would also be supported by high spot propylene feedstock prices in Asia, Asian PP producers said.
The benchmark PP injection and yarn grades are selling at around $1,420-1,470/tonne CFR (cost & freight) China for December shipment, while spot propylene feedstock is assessed at $1,300-1,320/tonne CFR NE (northeast) Asia, according to ICIS data.
The $120-150/tonne spread between propylene and PP prices was just enough to cover the cash cost of naphtha-based product and so regional plants would likely try to raise prices for January shipment, an Asian PP producer said.
PE and PP prices were expected to level out in early January when buying activity would slow down significantly ahead of the Lunar New Year, Chinese traders said.
“Most importers will not want to carry high stocks over the Lunar New Year holidays,” a Chinese trader said.
China will be closed 2-8 February for the Lunar New Year celebrations.
($1 = €0.76 / $1 = CNY 6.65)
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