By Malini Hariharan
The good news for polyolefin producers is that prices in China are inching up supported by an upward movement in the key linear low-density polyethylene (lldPE) futures contract on the Dalian Commodity Exchange (DCE).
The arbitrage window has opened with the Dalian contract for May at CNY12,800/tonne and spot prices at CNY11,100-11,300/tonne. My colleague in Shanghai says that traders were actively booking import cargoes for arrival in February-March and covering these transactions on the futures market. The monthly holding cost is approximately CNY200-300/tonne.
Pic source: Xinhua
Bids for imported lldPE cargoes this week were at $1420-1430/tonne cfr China. There has also been a slight movement in high-density polyethylene (hdPE) with some yarn-grade cargoes said to be sold at $1385/tonne cfr China. Low-density PE prices for film grade were at $1700-1720/tonne cfr China.
But the bad news is that naphtha is still rising. It touched $900/tonne cfr Japan on Thursday before closing at $892.00-896.50/tonne cfr Japan.
The naphtha crack spread hit $186.35/tonne versus Brent crude on Wednesday, the highest in nearly three years
Producers in Northeast Asia are worried. "Naphtha is a big headache for us; we cannot transfer the cost increase especially in high-density polyethylene (hdPE). This is problematic," says one producer.
The producer has yet to adjust operating rates but there were unconfirmed reports yesterday that Formosa Petrochemical Corp (FPC) plans to cut operating rates at its three crackers because of spiraling naphtha prices.
After one round of price hikes, its time for producers to seek more.