By John Richardson
CHINA'S polyolefin market was in "total chaos and panic" this morning, according to a Singapore-based trader.
The Dalian Comodity Exchange's futures contract in linear low-density polyethylene (LLDPE) fell a further 5% this morning after declines earlier in the week, according to ICIC news.
The weak futures markets caused a supply surge in the physical market as local distributors released cargoes.
The recent price recovery always seemed as if it was at risk of falling victim to macro-economic events.
Tighter supply was a big factor in the rebound, firstly as result of awareness in the market of scheduled maintenance shutdowns in August and September. The blog then heard reports of technical problems at two polypropylene (PP) plants in Saudi Arabia, affecting 1.1m tonnes of capacity on an annualised basis.
The problems at Formosa had a further positive influence on sentiment with an unconfirmed rumour this week of yet more production problems - this time at a cracker complex in Southeast Asia.
The arrival of both the peak production season for exporting finished goods to the West and the latest agricultural film season in China offered additional encouragement.
A slight seasonal uptick in demand was also been seen in SEA, ahead of the Muslim fasting season.
But what kind of peak demand season can we expect in China for all those manufactured goods heading to the West as fears grow that developed economies are heading back into recession? Martin Feldstein, emeritus professor of the US National Bureau of Economics, now believes that there is a 50% chance of the US heading back into recession.
US gasoline demand was up "a miniscule" 0.1 per cent for the week ending 29 July, according to the latest MasterCard SpendingPulse's latest survey. This is supposed to be the peak driving season.
The European Central Bank resumed purchases of Irish and Portuguese bonds yesterday in a sign of growing concerns over the Eurozone sovereign debt crisis. Italy and Spain may also need financially rescuing.
Oil prices tumbled yesterday with West Texas Intermediate for September delivery falling more than 5% to settle at $86.63 a barrel, removing all the gains made during 2011.
The Dow Jones Industrial Average has also seen all of its 2011 gains erased.
The Hang Seng Index in Hong was down 4.81 per cent this morning when the market opened.
And so not surprisingly, the Dalian Commodity Exchange's Rmb-priced futures contract in linear low-density polyethylene (LLDPE) has responded to all these macro trends.
"The futures contract across all delivery months has lost around Rmb1,000/tonne over the last week," added the Singapore-located polyolefins trader.
"My phone hasn't stopped ringing - it is total chaos and panic out there. In my view, the end-users were not the main driver behind the recent price rally. The rebound was because of traders taking positions.
"Now, of course, the end-users don't want to make any commitments until they see where pricing is going to bottom-out."