Please, please not again...
Source of picture: soccernet.espn.go.com
By John Richardson
The dreadful state of China's polyethylene (PE) market will last for at least the next two months as a result of the overstocking we talked about earlier this week and poor demand, two polyolefin traders told the blog today.
And one of the traders added that increased domestic production is leading to aggressive price-cutting by Sinopec.
"Its priority is to maximise sales from these new local plants which means right now that falling Yuan-based pricing is leading the market - pushing dollar-based imports in the same direction."
China's ability to quickly stabilise production at new plants is in contrast to persistent operating issues that have limited output from the Middle East, where most of the new capacity came on-stream in 2009.
A brief flurry of re-exports of Iranian material from China helped relieve some of the inventory pressure but arbitrage had now closed, he said.
Traders are concentrating on how to make returns across equities and futures markets as physical activity remains weak, he added.
"Recent restrictions introduced by China to cool-down the property market have also led to more speculative money flowing in and out of equities, futures and some physical trading in commodities, but certainly not PE due to the high inventories.
"Also, gambling on the Yuan has become more risky since the June 19 decision to widen its daily trading band. This is leading to yet more hot money flowing elsewhere."
For those who still have the appetite to take risks, this makes the Dalian Commodity Exchange's futures contract in linear low-density PE (LLDPE) somewhere to play while the physical market is so quiet.
"LLDPE, both future and physical because of the influence of Dalian, has essentially become a financial instrument," said the second trader.
"LLDPE futures have a limited, but still quite important, influence over the direction of physical pricing in high-density PE (HDPE), low-density PE (LDPE) and polypropylene (PP)."
The overall mood music seems to have shifted since the APIC conference in May with the majority of conversations I've had this week dominated by mounting concerns over a double-dip global recession.
"I was watching the recent England-Germany match with some friends and I was the only one betting on a German victory. I would also bet on a double-dip recession," the first trader continued.
He also thinks Germany will go on to win the World Cup.
So if Germany were to win, that would means he'd also probably be right on the economy.
Please, please no.....