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Job-hopping Causes Post-New Year Demand Dip

Business, China, Economics, Polyolefins
By John Richardson on 15-Feb-2011

Chinese workers are on the hop….

 

rabbit-hopping.jpgSource of picture: advanced-fibre.com

 

By John Richardson

CHINA’S polyolefin demand in the few days of proper trading that have taken place since the Lunar New Year has been described as “horrendous” and “grim” by two traders the blog spoke to yesterday.

This was confirmed by a source with a leading Asian producer – but not for the major macroeconomic reason that you might well assume.

Higher interest rates, bank-reserve requirements and other measures designed to slow the economy down are not behind weak short-term demand, according to our sources.

On the contrary, the producer believes that China’s government is now “ahead of the curve” in combating inflation and therefore the prospects for the rest of the year remain good.

The Dalian Commodity Exchange has in fact rallied post-New Year on the belief that the interest rate shock to the economy has already been factored in.

What has instead been given as the reason for poor demand is the traditional Chinese custom of job-hopping after the festive period.

A lot of factories in southern and eastern China are reported to be struggling to operate at full rates because migrant workers have quit their jobs in order to move on to pastures new, shortly after collecting their annual bonuses.

In light of this traditional seasonal labour-disruption problem, polyolefin imports before the holidays seem excessive.

“My contacts tell me that the bonded warehouses in the south and the east are full with resin being stacked in car parks,” one of the traders told us.

“The market will correct itself, as it always does, by re-exports from China. The re-exports are never great in volume but they can be enough to tip the balance in the right direction.

“I’ve been able to re-export to Turkey and Vietnam. Other traders have also moved material to South America.”

He believes that the temporary supply glut might not be fully resolved until late March and therefore doesn’t expect significant price increases until then (notwithstanding, of course, some other unforeseen events that move the market).

“Before the holidays producers were talking about raising prices on good demand and higher raw-material costs after the New Year,” he added.

“Several had sold all their February material by the first few days of the month.

“But now there is a significant gap between post-New Year offers and concluded business.”

Linear-low density polyethylene (LLDPE) offers were yesterday at $1,480/tonne CFR China as against concluded business of $1,450/tonne CFR China, he told us.

Homopolymer polypropylene (PP) offers were $1,580/tonne CFR China compared with limited transactions at $1,550/tonne CFR China.

Returning to the job-hopping issue we mentioned earlier on, what the blog needs to try and get to the bottom of is whether this temporary disruption to labour supply is worse this year than in 2010.

Rising wage expectations as a result of China’s booming economy, connected to which of course is the inflation problem, might have made workers more restive than usual.

A growing awareness of their rights as workers, supported by government-mandated improvements in working conditions, might also be factors behind an increase in job-hopping.