China LLDPE futures rise 0.4% on interest rate hike

09 February 2011 10:26  [Source: ICIS news]

SINGAPORE (ICIS)--China’s linear low-density polyethylene (LLDPE) futures rose by 0.4% on Wednesday, as an announced interest rate-hike overnight triggered speculations that general commodity prices will increase further, said local futures brokers.

“Many investors saw the interest rate hike as an indication that inflationary pressure was still going strong as, otherwise, the government need not have introduced another measure to curb economic growth,” said Duan Lijun, a petrochemical analyst at Zhong Hui Futures in Shanxi, north China.

The May LLDPE futures contract was the most liquid. It rose to yuan (CNY) 12,110/tonne ($1,846/tonne) before closing at CNY12,010/tonne on Wednesday afternoon, data from the Dalian Commodity Exchange (DCE) showed.

The closing price was CNY45/tonne or 0.4% higher than the settlement price on 1 February, according to DCE’s data.

China markets were closed on 2-8 February for the Lunar New Year holidays.

China has been curbing its lending growth since last year as a result of the inflationary pressure created by its aggressive lending stance adopted in 2009.

Meanwhile, an ongoing drought in the country’s key wheat production bases at Henan, Shandong and Shanxi also spurred speculation that the prices of agricultural products would rise further, said Shi Minzhu, a petrochemical analyst at Nan Hua Futures in Zhejiang, east China.

However, the interest rate hike had a limited impact on the futures market because it was lower than widely anticipated, said Shi.

Many analysts had anticipated a 50 basis-point increase, but the interest rate was raised by 25 basis points, she added.

Nonetheless, some said the impact of tightened credit resulting from the interest rate hike would hit the financial market by late March and cause futures prices to fall.

“The general market expectation is that a reversed impact [from the immediate bullish effect] would be felt after eight weeks,” said Li Chenming, a petrochemical analyst at Guangfa Futures in Guangzhou, south China.

($1 = CNY6.56)

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By: Chow Bee Lin
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