.....but time to party for some thanks to re-exports to Brazil
Source of picture: edgsgonesouth.com
By John Richardson
It's a funny old world - or so it seems in poylolefins at the moment as traders re-export resin from China to Latin America and elsewhere.
"I phoned up a trader in China the other day and asked if he wanted to buy some consignments of polyethylene (PE)," said another trader, based outside China.
"He asked me whether I would instead like to buy material for re-export."
And yet another trader - who is based in Singapore - added yesterday: "A lot of the re-exports have gone to Latin America, but I have also sold material to Bangladesh and Israel.
"Some of the shipments have made money. For example, I bought Linear-low Density PE (LLDPE) from Brazil at $1,170 CFR China a few months ago. Last week, I sold the same cargo back to Brazil at $1,450. With freight at $170/tonne I made a decent profit.
"Other re-exports have lost money, though, as traders have cut their losses due to high inventory levels in China.
"I estimate around a total of 10,000 tonnes has been re-exported over the last few weeks.
"This is a very small amount when measured against the huge volumes traded, but it seems to have helped sentiment a little. Confidence has slightly picked up in the Chinese trading community as a result of the re-exports easing inventory pressures."
Bonded warehouses in the south, the east and the north of China were, however, still close to full, he added.
"The problem is that traders purchased a lot of material in November and December because confidence at that time was high.
"They underestimated the risks of weakening monomer prices undermining support for both PE and polypropylene (PP) pricing, and measures the Chinese government has taken to slow the economy down."
Successful start-up of the new 800,000 tonne/year Shell cracker in Singapore took place on 22 March, according to an official announcement.
And in Thailand, Mab Ta Phut Olefins was heard to have achieved on-spec production at its 900,000 tonne/year naphtha cracker, ICIS news reported yesterday.
Shell was expected to export around 150,000 tonnes of ethylene and 250,000 tonnes of propylene on an annual basis, while Mab Ta Phut Olefins would ship out more than 100,000 tonnes of propylene a year, the same news report added.
But the blog has been told that much more than 100,000 tonne/year of extra propylene will be available for export from Thailand over the next 12 months.
And returning to ethylene, exports are expected to increase from Qatar and Saudi Arabia.
The mood among poylolefins buyers has shifted in China towards one of much-greater caution, added the Singapore-based trader.
"I recently visited five factories where all the factory owners knew that resin was long and didn't feel in a hurry to buy beyond their immediate needs.
"They can smell blood in the air as new capacities are coming on-stream and plants that have already started up are ramping-up production.
"The buyers also know that the traders are coming to the end of their 90-day credit terms and so are desperate to sell stuff out of the bonded warehouses.
"End-users are also becoming much more cautious because of the uncertainty over government economic policy and a potential Yuan revaluation. And they are struggling with the labour shortages."
The good news, though, seems to be that overseas producers are in comfortable positions due to their low stock levels.
"We are in no hurry to sell as we continue to manage our production very prudently," said a Singapore-based source with a global polyolefin producer.
The trader said that this was a comment that had been made by many of the big Asian ex-China and Western producers
"One of these producers has been offering PP homopolymer grade at $1,350 CFR China, which is completely unworkable as the current China price is $1,310, suggesting a comfortable position."
But the longer-term issue remains the strength of growth in China this year (to repeat, we think it's bound to be lower than 2009) as all the new capacities start-up.