By John Richardson
SOME polyolefin companies continue to present an optimistic picture of markets to investors.
They point to positive factors such as renewed economic stimulus in China and a recovery in auto production in Thailand following last year's floods.
But, as we said yesterday, those involved in the day-to-day grind of trying to sell a wide range of petrochemicals, including polyolefins, paint a very different picture.
A source with one producer we spoke to this week was notably pessimistic.
Here is what he said, with a few of our own additions in brackets:
"A lot of the speculators have gone short on the Dalian Commodity Exchange's futures contract in linear-low density polyethylene (LLDPE).
"This is on the assumption that prices will fall by the end of May, when they will need to go in to the physical market to honour their contracts. They are therefore betting on a price correction.
"By the end of this month, I am concerned that LLDPE will have fallen to around $1,240/tonne CFR China (last week ICIS accessed LLDPE film at $1,330-1,400/tonne CFR China).
"There are two factors driving the market at the moment - the lack of Chinese demand and the approach of the Middle East producers.
"Chinese demand continues to really surprise everyone on the downside and we are all frequently looking for explanations about what is happening.
"A theory I heard the other day was that many of the polyolefin traders have either directly invested in property through their own real-estate companies, or are indirectly exposed through investments in other people's real-estate companies.
"As bank lending has become harder to get hold of, and as property prices have declined, they have been forced to cover their obligations by selling polyolefins at low prices - thus driving the whole market down.
"I think the blog's earlier assessment of the other factors shaping growth this year was a very good summary.
"The buyers are very cautious and continue to wait for prices to bottom out, but there is no sign of this happening because the Chinese economy is weaker than anyone had expected.
"The Middle East producers have so far held the line on price reductions, as they have a responsibility to their naphtha-based joint ventures in Asia. As a result, they have yet to aggressively reduce prices.
"But the concern is that if the market doesn't recover by the end of May, they will be forced to lower their offers because of more Middle East supply pressure. Several turnarounds in the Middle East have just finished."
(Saudi Polymers is also due to bring on stream two 550,000 tonne/year high-density PE plants and a 440,000 tonne/year polypropylene facility by the end of Q2 this year).