China fuels another price bubble

By Malini Hariharan

Speculative fever has struck the Chinese purified terephthalic acid (PTA) market with domestic prices soaring by 26% in just one week.

PTA futures trading on the Zhejiang Commodity Exchange (ZCE) was suspended for the whole day Tuesday, after values soared by more than 10% in just three days, writes my colleague Becky Zhang on ICIS news.

Regional PTA values followed the lead of China prices, climbing to a record high of $1,280-1,320/tonne CFR China Main Port.

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Pic source: Forbes

The rapid rise has resulted in concerns of a sharp price correction and one Chinese producer conceded that the price spike was “irrationally strong”.

“One must take the cautious road once demand from end-markets winds down as a resistance to hefty prices,” said Kuang Bo, analyst at Yangan Future Broker.

“Waning demand would build up inventory and finally bring down prices and margins of the whole industry,” she said.

But PTA is only following the trend seen in polyester and cotton markets. Polyester spot prices in China also shot up 40% in the last week.

As for cotton, it continues to set new records.

The March-delivery contract hit $1.5195/lb on the ICE Futures after the US government cut its estimate on global production and inventories and cited a shortage in China, the world’s biggest buyer and consumer.

The China Cotton Index (CC Index 328), a major gauge of cotton prices in China, rose to 28,891 yuan ($4,332) per ton on Monday, up by about 100% from last year.

And a price correction in polyester or PTA would be unlikely if cotton continues to rule firm.

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