FocusChina PE prices to bottom out in mid Feb on restocking

27 December 2011 03:16  [Source: ICIS news]

By Chow Bee Lin and Angie Li

SINGAPORE (ICIS)--China’s polyethylene (PE) prices are expected to bottom out in mid-February on restocking activity following a persistent downtrend, industry sources said on Tuesday.

The prices of different PE grades fell by 2.7-7.5% in the past six weeks on weak demand, according to ICIS.

Restocking demand will be significant because most importers have been keeping low inventory in 2011 as a result of tight credit and weak downstream demand, and some have reduced their December stocks to minimum levels ahead of the Lunar New Year holiday on 22-28 January, local traders said.

PE prices will not fall further in the first quarter because the current prices of the different PE grades are already close to or at cost for naphtha-based PE producers, according to some local traders.

More naphtha-based PE plants will reduce production rates in the first quarter if their margins fall further, they said.

The cash margin of integrated naphtha-based producers was estimated at $147/tonne (€113/tonne) for the week ended 16 December, according to ICIS.

A number of PE producers in Taiwan and South Korea have been running their PE plants at reduced rates because of thin margins.

The prices of low density PE (LDPE) and high density PE (HDPE) could enjoy some support if the US and European union sanctions on Iran tighten and curb its PE export, a Shanghai-based trader said.

Iran sells mainly HDPE and LDPE to China, having exported 188,211 tonnes of LDPE and 265,015 tonnes of HDPE to China during the first eight months this year, according to the China customs.

But China’s PE market will likely come under pressure again after the restocking is completed because the domestic economic growth is expected to slow down next year, the traders said.

“The Chinese economy will be at the tail-end of a down-cycle in 2012. It’s expected to improve only in 2013,” a Beijing-based trader said in Mandarin.

China’s monetary policy is expected to remain tight next year which will in turn curtail the domestic plastics demand, local traders said.

Additional reporting by Amy Yu, Yu Jiao Jiao, Dong Yu Ling, Moon Chen

($1 = €0.77)

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By: Chow Bee Lin
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