Buying resumes but will it last?

By Malini Hariharan

A spurt in polyethylene (PE) and polypropylene (PP) buying in China over the last few days has raised hopes among sellers that the market has bottomed out and prices should rise in the coming weeks.

After hand-to-mouth buying for the last three months buyers are said to be replenishing stocks which should enable producers to tide through November and December.

However, sustainability of a recovery is still doubtful given rising polyolefin exports from the West and macroeconomic developments.

The latest data from Asian countries indicate weak manufacturing activity with exports hit by poor demand from the West.

China’s official purchasing managers’ index (PMI) for October fell to 50.4, its lowest level since February 2009 although the HSBC index came in at 51, up from 49.9 in September.

The new export orders index dropped by 2.3 percentage points from September to 48.6 in October. The new orders index fell by 0.8 percentage points to 50.5, while the production index dropped by 0.4 percentage points to 52.3.

The PMI, which is a measurement of the monthly performance of China’s factories, is based on a survey of 820 manufacturers across 20 industries. A reading below 50 indicates contraction in manufacturing activity while a reading above that level indicates an expansion.

Analysts interpreted the data as yet another sign of moderation in China’s economic growth. But some also predicted that the government would not hike interest rates further as it attempts to balance conflicting objectives of controlling inflation and maintaining growth.

Among the other Asian countries, Taiwan was the worst performer with the October PMI touching 43.7, the lowest level since January 2009. South Korea’s PMI for October was at 48, the third straight month of contraction although at a slower pace than September.

Restocking activity is likely to provide some respite to producers for the rest of this quarter but it is probably too early to predict that prices have hit the floor.

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