By John Richardson
AS the blog had anticipated would happen, there were sharp retreats in some chemicals and polymers pricing late last week on the steep declines in equity and crude prices.
Polyethylene (PE) fell by $70-130/tonne, according to our colleagues at ICIS pricing, as the Dalian Commodity Exchange once again demonstrated that it has become a major influence.
Many industry sources now tell us that PE in general (the Dalian has an influence across several different grades) has almost become a financial instrument; in other words, its day-by-day and week-by-week price in China moves in line with the Dalian as the Dalian moves in line with crude oil and equities.
Therefore, you could draw a neat line between last week's dip in PE pricing and the retreats in crude and equities as investors took flight.
Towards the end of the week equities and oil regained ground as confidence reportedly grew that Beijing's measures to tackle rising consumer-price inflation would have a limited impact on the broad economy.
The recoveries were also said to be the result of greater confidence that a rescue package would be successfully agreed for Irish banks.
In parallel, Dalian saw four consecutive days where the futures contract fell beyond the maximum allowed in one day's trading, forcing trading to be suspended, before a recovery on Thursday.
Source of picture: Inoldlasvegas.com
Polypropylene (PP), too, retreated on the influence of Dalian but by a more modest $10-20/tonne as traders seemed to be in a comfortable position to try and ride out the negative sentiment.
Propylene was more steeply down, by $20-70/tonne, as it reacted to the dip in crude futures.
But there seem to be factors specific to the C2s markets sufficient to override the overall sentiment which kept ethylene stable.
Click here for these numbers in graph form -
This reaffirms our view that this market has become very hard to read because of more extreme shifts in spot cargo availability.
Benzene, perhaps the mother of all chemicals, was down $15-50/tonne but interestingly, paraxylene (PX) staged a rally later in the week as market participants had time to react to the recovery in equities and crude.
One of the big macro questions is whether China will, indeed, get it right by taking targeted measures that are sufficient to bring inflation under control.
This article from the Wall Street Journal suggests, rather worryingly, that China is now running out of ammunition to fight the hot money flowing into its economy - which at risk of continuing as long as quantitative easing lasts.
Every mood swing in equity and commodity markets is bound to find a reflection in chemicals and polymer markets over the coming weeks as the prospects for next year seem exceptionally uncertain.