18 January 2013 15:34 [Source: ICB]
The last month-and-half has been very good in China for at least one polyolefins trader and one producer after what, on the whole, was a very disappointing 2012.
"I thought there would be a mini-rebound in pricing in early November, and I was correct," said a Singapore-based trader. "Prices then retreated slightly before a stronger rally began in late November."
A source with one global polyolefins producer also reported that, volume-wise, his company enjoyed a very good fourth quarter.
But a source with a second producer, based in North America, still believes that only Chinese converters with an urgent need to fulfil orders before the Lunar New Year, which this year falls on 10 February, have increased their resin purchases.
"Most fabricators are maintaining hand-to-mouth purchasing because of the uncertain outlook," he said.
The recovery since early December appears to have been driven by the following factors:
"Is there a real improvement in polyolefins demand or is this the result of short-term tight supply and an improvement in sentiment?" queried the Singapore trader. "Quite frankly, I don't really care as I've made good money since November and can now afford to play very cautiously over the next couple of months, without worrying about missing out on anything further."
REASONS FOR CAUTION
Reasons to be cautious about the sustainability of the recov-ery include:
The end of turnarounds in the GCC in February-April and the resumption of production at Petro Rabigh and Daqing.
Substantial amounts of new capacity. ExxonMobil might ramp-up production at its two 650,000 tonne/year metallocene LLDPE plants and its 450,000 tonne/year polypropylene (PP) facility in Singapore, now that its 1m tonne/year cracker is being commissioned. China is also set to bring on stream significant amounts of capacity, including Sinopec Wuhan Petrochemical. Its 300,000 tonne/year LLDPE plant and 400,000 tonne/year PP plant are due on stream in the first half.
The fact that stock and commodity markets also rallied in 2009, 2010, 2011 and 2012, only for the rallies to peter out.
"I think the key to the length of the stock market and commodities rally is how long it will take before enough of the right kind of people [start] worrying about the need for the US to raise the debt ceiling," added the Perth-based analyst. "The avoidance of the fiscal cliff was a fiscal fudge. It solved absolutely nothing, but markets will seize on any slight good news as an excuse for a rally."
The US Treasury Department will by late February or early March run out of funds to cover its obligations, unless Congress agrees to raise the debt ceiling.
Polyolefins producers point out that a key issue for Chinese growth this year will once again be the strength of its finished-goods exports to the West.
"I have written off Europe - I cannot see any hope for the eurozone this year. All I can realistically hope for in the West is that the US does get past the debt ceiling," added the source with the second polyolefins producer.
"From late February/early March, when the Chinese New Year is over, plants have returned from turnarounds, new capacities start to come on-stream and the debt ceiling issue has come to a head, we should get a real idea about the strength of demand," he added.
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