Dalian LLDPE prices now seem to follow crude oil

Dalian Dec09.JPGChina’s Dalian polymer futures market continues to have a major influence on regional, and global, polyethylene markets. But November’s trading volume was lower than a year ago, at 25 million tonnes. This is the first negative annual growth since volume took off in June last year.

Last month, the blog noted a comment from LyondellBasell COO, Ed Dineen, that China’s polyethylene (PE) market seemed to be following crude oil prices. And the chart above certainly provides support for this theory. It shows LLDPE prices (red dotted line) beginning to shadow crude oil prices (blue line) from July 2008, just after Dalian volumes began their meteoric rise from 100kt/month to April’s record 80 million tonnes.

Normally, one would expect LLDPE supply/demand balances to have their own separate impact on pricing. In H1 2008, for example, LLDPE prices fell, even though crude prices were rising. Thus the chart does highlight a clear risk that part of China’s massive import demand this year for PE may be linked to speculation on crude oil prices, financed by the government’s massive lending programme.

We will only find out for certain, if indeed crude prices do slip from today’s levels. But if the blog was a major player in PE markets, it would certainly now try and hedge this risk as far as possible.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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