China’s PE, PP import demand capped by high stocks

25 March 2011 08:35  [Source: ICIS news]

SINGAPORE (ICIS)--China’s polyethylene (PE) and polypropylene (PP) import demand is being capped by high inventories and lower prices in the local retail market, industry sources said on Friday.

The retail market in Lecong in China’s Guangdong province is estimated to be holding around 45 days of PE stocks, which is considered high as the market typically holds around 15-20 days of stocks, said a plastics processor in Guangdong.

High inventories have led many local traders in east and north China to re-export their material to different parts of the world, including Europe, Pakistan and southeast Asia, Chinese traders said.

The oversupply situation was particularly apparent for film grade high density polyethylene (HDPE) and to some extent, linear low density PE (LLDPE), local traders said.

As a result of the supply glut in HDPE film grade, local producer Fujian Refining and Petrochemical (FREP) has decided to switch its 400,000 tonne/year HDPE plant to produce LLDPE from 1 April, the traders said. FREP could not be reached for comment.

Import demand was weak also because domestic retail prices were significantly lower than import offers for April shipment, Chinese traders said.

In the local retail market, imported film grade HDPE and LLDPE were selling at yuan (CNY) 10,550-11,050/tonne ($1,608-1,684/tonne) and CNY10,800-11,350/tonne, respectively, and imported PP yarn was selling at CNY12,400-12,500/tonne EXWH (ex-warehouse), according to ICIS data.

The lowest import offer prices for film grade HDPE and LLDPE are at $1,350/tonne and $1,400/tonne, respectively, on a CFR (cost & freight) China basis for April shipment, Chinese traders said.

These import prices work out to around CNY11,185/tonne and CNY11,594/tonne on an ex-warehouse basis, after taking into account the import duty, tax and other expenses, which are CNY875/tonne and CNY635/tonne above the lowest retail prices, the traders said.

The lowest April import offer price for yarn grade PP at $1,680/tonne CFR China works out to around CNY13,880/tonne EXWH, taking into account the import duty, value-added tax and other expenses, which is CNY1,480/tonne above the lowest retail price, they said.

PE and PP resin producers in Asia and the Middle East have been raising offer prices in the last two months because of rising crude prices, local plastics processors said.

But the downstream application sectors in China, including food packaging, agricultural films and home appliances, have not been able to absorb the sharp price increases and hence resin demand has been dwindling, they said.

The weak demand in turn has caused a build-up in local retail inventories, they added.

($1 = CNY6.56)

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By: Chow Bee Lin
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