Rocky road ahead

By Malini Hariharan

Asian polyolefin producers confront yet another challenging week.

The macro environment suggests that implementing price hikes for September cargoes will be difficult. Stock markets around the world continue to be jittery with concerns about a US recession and debt problems in Europe still in the forefront.

Support from oil also appears uncertain. Prices softened yesterday in reaction to developments in Libya where rebels have finally captured Tripoli. The expectation is that Libya will quickly resume oil exports although this may take months to materialize as damaged infrastructure will first need to be repaired.

China’s manufacturing story continues to disappoint. The preliminary HSBC China Manufacturing Purchasing Managers Index for August at 49.8 is higher than analyst expectations and above the July figure but is below 50 indicating a contraction in activity.

The country’s vice commerce minister has acknowledged that China’s foreign trade is facing slow external demand and pressure from surging costs.

Polymer plant turnarounds in Northeast Asia are expected to keep product availability under check and producers will probably be banking on this factor to drive price stability. In polypropylene (PP), producers will also be looking at the strength in propylene prices which were up $20-40/tonne last week.

But what matters in current markets is sentiment which is still very weak. Polymer buyers are understandably in no rush to make large volume purchases. And only the very brave traders will be willing to take a long position.

“Buyers are very hesitant; crude is down and there will be more price corrections if crude continues to fall,” admits one producer.

Polyolefin prices have fallen by $30-50/tonne in the last two weeks, a swift correction to the five weeks of gains recorded since early July. Producers will be very lucky if prices can be maintained at current levels.

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