By Malini Hariharan and John Richardson
Expect the unexpected and you probably stand a good chance of making money in the polymer market.
Defying expectations of a slowdown in demand ahead of the Chinese new year in February markets have started 2010 with a bang - material is short and prices are steadily moving up.
Prices have risen by $50-170/tonne from early December. LdPE is now being talked about at $1450/tonne cfr China, lldPE at close to $1400/tonne cfr China while hdPE at $1350-1450/tonne. PP has hit $1300/tonne in China and one trader thinks that it will cross $1350/tonne by the end of the week.
"I bought a load of material in December and so I am delighted. Everyone else was being bearish, but I thought with the economy doing so well, why not [buy]," says a second trader
The first trader describes the markets as "being on fire" supported by the strength in crude oil prices ($81/bbl today) and tight availability because of plant problems in the Middle East and Asia.
Supplies from new plants (Sharq, Yansab, Fujian Petrochemical and Dushanzi Petrochemical) are still not arriving as expected, says a third trader. And if you add turnarounds and operating problems to the equation buyers face a very tight market.
However, there is still not much confidence that the bull run can be continue after operations at new plants stabilize. Concerns about the health of the global economic continue to cloud the picture. There is nervousness in some quarters that very high prices will only lead to a steep fall in the future. "Remember 2008? Everyone is scared of a repeat," says one producer.
But leave room for the unexpected to create surprises at least in the short term. For instance, severe winter conditions across most of the northern hemisphere are affecting petrochemical production.
Pic source: Xinhuanet
Our colleagues at ICIS news have reported that naphtha is short in Asia as a result of reduced shipments from Europe. This has forced lower operating rates at some aromatics units and Formosa's three crackers in Taiwan.
There have also been unconfirmed reports of a reduction in operating rates at some crackers in Europe.
In China, heavy snow in the northern provinces has closed expressways and affected movement of products, reports ICIS news. Chemical producers were also facing power shortages and they do no expect the situation to ease before March.
And China's cold spell could also affect start up of new plants. The second trader says Tianjin Petrochemical's new cracker complex is likely to start only after the Chinese new year, a delay from the earlier target of end-2009.
We have also heard that start up of new methanol-to-propylene (MTP) projects in the north, such as the Datang Power project, could be delayed to the second quarter.
"This season is not good to start up; companies would not like to take the risk," says a Beijing-based industry source.
More delays would tighten supplies further. And if demand holds up the bull run may not end very soon.