Polymers: polypropylene prices fall in China

10 October 2011 00:00  [Source: ICB]

Buyers are expected to proceed with as much caution as they have been displaying in recent months based on global economic uncertainties

China's offers of imported polypropylene (PP) fell by as much as 4.6% in the week ended September 30 due to lowered offers by Middle Eastern and Indian producers for October shipments.

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Weak demand drives PP down
The lowered offers are said to be incentives to entice buyers forward at a time when downstream markets are seeing weak demand.

Benchmark injection and raffia (yarn) grades of PP were offered at $1,450-1,480/tonne (€1,058-1,080/tonne) CFR (cost & freight) China in the week ended September 30 for Middle East cargoes set for shipment in October.

This is down from $1,500-1,520/tonne CFR China in the week ended September 23, as assessed by ICIS.

One Middle East producer is reported to have dropped its offer by $60/tonne to $1,450/tonne CFR China for cargoes meant for prompt lifting from ex-bonded warehouses, local Chinese traders said.

Those offers come on the heels of a reduced offer by an Indian major producer, which lowered its price by $70/tonne to $1,450/tonne CFR China, on September 26. Meanwhile, a South Korean producer is also reported to have lowered its offer by $10/tonne, to $1,520/tonne CFR China, for October shipment.

Buying interest for imported PP in China has been poor for two reasons. First is the week-long Chinese National Day holiday, which began on October 1.

And second is a new tightening credit policy announced by the Chinese government on September 19 and recently implemented.

In addition, there has been poor domestic and re-export orders to the US and Europe, which weakened buying interest in PP even further.

These import prices represent a nine-and-a-half-month low.

On September 30, the price outlook for PP was uncertain. Some players said they expect further price declines because of the poor economic climate, and softer raw material costs.

Other players, however, said that prices may not decrease as the integrated naphtha-based PP makers are still incurring negative margins and PP prices have already fallen by 6% in September alone.

TIGHTER CREDIT

The new monetary policy introduced in China on September 19 restricts the opening of letters of credit (LC).

Under the new policy, the local State Administration of Foreign Exchange stated that China's five state-owned commercial banks were forbidden to draw LC at 30-90 days from September 20-30 in Ningbo, a major port in east China.

The new policy means that deals can only be settled in cash or LC on sight.

It was not specified if the policy would extend into October, local Chinese traders said.

The policy change is believed to be a government effort to control cash flow in an effort to curb nationwide inflation.

It was not welcomed by local importers, leading to weakened import sentiment for PP.

On the supply side, China-based Ningxia Petrochemical is planning to start up a new 5m tonne/year refinery at Yinchuan in Ningxia province by late October, according to its parent company, PetroChina.

Ningxia Petrochemical will start up downstream plants after operations at the refinery become stable. These downstream plants include a 2.6m tonne/year catalytic cracker, a 600,000 tonne/year continuous reformer and a 100,000 tonne/year PP plant.

Construction of these facilities began in early December 2009.

The company's existing 1.5m tonne/year refinery was shut in June 2011 in preparation for the installation of the new plants.

EUROPE EYES ROLLOVER

Several PP producers in Europe, meanwhile, are said to be eyeing a rollover of prices from September to October.

This was reported after the October propylene contract price settled at €1,068/tonne FD (free delivered) NWE (Northwest Europe), which represents a €10/tonne fall from its former level.

  • Additional reporting by Belle Huo in Shanghai, Fanny Zhang in Guangzhou, and Linda Naylor in London

Author: Feliza Mirasol, Ong Sheau Ling, Beelin Chow, Belle Huo, Fanny Zhang and Linda Naylor



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