Asia chemicals shrug off China policy rate cut; crude falls $2/bbl

08 June 2012 09:35  [Source: ICIS news]

By Pearl Bantillo

SINGAPORE (ICIS)--Trading of petrochemicals in Asia remained sluggish on Friday, with prices falling in tandem with crude, largely shrugging off China’s surprise move to boost its economy via an interest rate cut – its first in three years.

China’s central bank - the People’s Bank of China – announced overnight a 25-basis point cut in policy rates, bringing the benchmark one-year lending rate to 6.31%, effective 8 June.

China is one of the top energy consumers in the world and is a major importer of petrochemicals in Asia.

“The present market is so bearish, buyers are unlikely to turn bullish overnight just because of an interest rate reduction,” said a bitumen trader.

On Friday afternoon, crude futures fell by more than $2/bbl, extending their declines as concerns the about US economy weighed more on the market.

Federal Reserve chairman Ben Bernanke on Thursday did not hint at fresh measures to help the recovery of the world’s biggest economy.

At 16:04 Singapore time (8:04 GMT), US crude slumped $2.62/bbl to $82.20/bbl, while Brent crude fell $2.37/bbl to $97.56/bbl.

Naphtha prices were tracking crude’s falls in Asia, shedding $13.00-14.00/tonne at midday to $767.00-770.00/tonne CFR (cost and freight) Japan.

Trading of aromatics was likewise affected by crude, with benzene falling $55-60/tonne to $985-1,000/tonne at midday and toluene at $970-990/tonne FOB Korea, down $5/tonne at the high end of the range.

In China’s rubber futures market, prices are continuing to fall as a bearish sentiment continued to prevail despite the interest rate reduction in China that should help ease the tight domestic credit conditions that limit trades.

“Market sentiment has not improved,” said a China-based trader, saying that natural rubber futures prices declined to yuan (CNY) 22,300/tonne on Friday from $22,800-22,900/tonne on Thursday.

The fragile US economy, the ongoing eurozone crisis and the slowing down of the Chinese economy raise a spectre of another global recession that is spooking investors across the commodities and equities markets.

China’s unexpected policy rate cut came a week after release of data indicating continuous weakening in China’s manufacturing sector amid a weakening of external demand.

The country’s Purchasing Managers’ Index (PMI) declined by 2.9 percentage points in May to 50.4% from April.

“Clearly, the disappointing data triggered the [interest rate] cut… If it fails to spur lending and investment as policymakers wish, more cuts will be taken later,” said Zhang Junfeng, a senior analyst at Shenzhen-based broker China Merchants Securities (CMS).

Zhang said the Chinese authorities will likely issue one to two more interest rate reductions this year.

“This may sound to be good news in the short-term, but when this settles in, then the market will realise a bigger problem that is Europe,” said a southeast Asian cracker operator.

China may just be taking a pre-emptive action, anticipating release of dismal May economic data this weekend, analysts said.

Additional reporting by Fanny Zhang, Dolly Wu, Ong Sheau Ling, Helen Yan, Alfa Li, Kim Lu, Victor Liu

By: Pearl Bantillo
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