Source of picture: 1st-commoditytrading.us
It's only one comment from one consultant, but this is what he said today about the growing role of the Zhenghou Commodity Exchange's purified terephthalic acid (PTA) futures contract.
"PTA futures have been exerting a huge impact on spot pricing starting 2H July.
"We haven't seen any increase in physical demand for polyester end-products (that isn't out of the ordinary - winter orders for textiles/garments usually don't come in until September), so players are turning to the futures market for direction.
" It was up to Rmb 8200-8250 middle of last week, but came off to Rmb 8000 on Friday, which has stalled forward momentum in the PET Chain (PTA/MEG/Polyester)."
Bear with me on this for a possible reason why the Zhenghou exchange could be lagging Dalian in its influence on the overall market.
Polyester producers have only recently started taking advantage of ample bank lending in order to raise operating rates.
Polyolefin off-takers have been dipping into the enormous amounts of easy cash flowing into the economy since as early as Q1.
"The polyester sector is much more heavily dependent on exports. As a result, confidence has only recently picked up with the firmer belief that the global recovery has arrived," the consultant said.
But as he points out there is NO actual stronger consumption of polyester. Rates are being increased on the assumption tha textile and garment orders for the next overseas buying season, due to start in September, will be strong.
Why not indulge in a bit of paper trading to offset any potential physical inventory losses?
And if it's not the producers involved in Zhengzhou it might be the traders. They could be taking advantage of rising uncertainty over underlying demand versus speculation and inventory levels.