OUTLOOK ’14: China’s PE, PP Jan/Feb market outlook bearish

31 December 2013 03:13  [Source: ICIS news]

By Chow Bee Lin and Angie Li

Polyethylene (PE) sheetsSINGAPORE (ICIS)--China’s polyethylene (PE) and polypropylene (PP) market outlook in January-February is widely perceived to be bearish on expectation of a slowdown in downstream demand and an increase in local supply, industry sources said.

Many Chinese traders and plastics processors are expected to stop booking end-January or early February arrival cargoes because the local transport systems will prioritise passengers over cargoes in the week before and after the seven day-long Lunar New Year holiday due from 31 January, local distributors said.

Many plastics processors in China are expected to maintain lower operating rates during the holiday season because most of their workers will be away, the distributors added.

“Restocking activity will slow down significantly in the two weeks before and after the holiday,” a local trader said.

Restocking activity is expected to gain pace in the second half of February, local distributors said.

Local PE and PP resin supply is expected to be higher in the first quarter next year, compared with the same period in 2013, because Wuhan Petrochemical’s recently started up PE plants at Hubei province would have ramped up production by then, local distributors said.

Local producer Fushun Petrochemical is also expected to ramp up production at its PE and PP plants at Fushun, Liaoning province by January, after restarting the plants in November following a prolonged shutdown, the distributors said.

Chinese PE and PP resins producers will be operating their plants during the Lunar New Year holiday even when demand is expected to slow down, hence they will be holding high inventories immediately after the holiday, and that in turn would exert some downward pressure on PE prices, they added.

Increased PE import supply is expected to weigh down on China's PE domestic and import prices, local traders said.

China's PE import is expected to rise in the first quarter because low density polyethylene (LDPE) export from Iran is expected to regain pace, local traders said.

Iran’s LDPE exports to China were significantly lower this year because of production issues at some Iranian PE plants, the traders said.

China imported 2,874,369 tonnes of LDPE from Iran in January-November 2013, 27.7% lower on a year-on-year basis, according to China customs’ data.

Any downward price pressure on China's PP domestic and import prices may be moderate because most traders and plastics processors have been holding low resin inventories, local traders said.

Despite the bearish first-quarter market outlook, many local traders and plastics processors are optimistic that China’s PE demand will continue to grow in 2014, with some estimating growth rates to range from 5% to 10%.

The Chinese government is expected to introduce policy incentives to support the small and medium-scale companies in China, including plastics processors, and that in turn will boost plastics resin demand from the downstream processing sector, local distributors said.

Additional reporting by Amy Yu, Lizzie Yu, Summer Zhang, Doreen Zhao

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Chow Bee Lin
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