China Jan-May PE Demand Declines

ChinaPEJan-May2012.jpgBy John Richardson

THE chart above, from data provided by Global Trade Information Services, further confirms that all hope of any substantial growth in China’s commodity grade polyethylene (PE) market during 2012 needs to be given up. Companies, and chemicals investors, should further revise their expectations.

The five percent decline in apparent demand growth (imports plus domestic production) for January-May 2012 over the same periods in 2011 and 2010 is a slight improvement on the six percent fall in January-April.

However, it is a long way from expectations of strong growth during 2012, which was the consensus in early Q1.

In all probability, the best the industry can hope for is flat growth, with quite likely a decline over last year.

Nevertheless, following a slight improvement in pricing last week (our colleagues assessed some grades at $10 a tonne higher, although other grades fell by $10), there has been a moderate improvement in short-term sentiment.

“The market has stabilised in Asia a bit and all we need now is no more bad macro-economic news,” said a source with a North American-headquartered producer.

“The Southeast Asians are benefiting from the ASEAN-China free-trade agreement and so are making pretty decent margins. It is the Northeast Asians who are really struggling.”

This is again confirmed by the chart above, which shows a 12 percent rise in Southeast Asian exports to China compared with a 39 percent fall in Northeast Asian shipments.

“US prices are lower than those in Asia,”continued the source, as he discussed potential arbitrage to China.

US May contract prices fell by 7 cents/lb ($154/tonne) and June contracts could decline by as much as $7-8 cents/lb, although at least four producers are trying to limit the June fall to only $5 cents/lb.

“I expect a further fall in July by around $5 cents/lb on weaker demand as buyers hold back on purchases because of macro-economic worries,” the source added.

But, as yet, he hasn’t seen any signs of the anticipated surge in US exports to China as the States tries to regain lost market share: North American Free Trade Agreement exports fell by 58 percent in January-May, as the chart above once again shows.

“I don’t think there is any US-China arbitrage at the moment. If you take the cents/lb per pound cost in Houston, including freight and handling charges for linear low-density PE (LLDPE), it comes to around $1,210/tonne and so arbitrage isn’t quite there, but it is pretty close,” he continued.

China CFR LLDPE prices were assessed at $1,190-1,220/tonne by ICIS for the week ending 22 June, $10/tonne higher than the previous week.

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