China's demand has been the main driver for the global chemical industry over the past year. And prices on China's Dalian polymers futures exchange have been a key indicator of the boom. But now, the rally seems to be running out of steam. The key signs are in the above chart:
• At the end of January, the linear low density polyethylene (LLDPE) contract (red dotted line) was trading at 11210 yuan/tonne, whilst WTI crude oil (blue line) was $73/bbl.
• But by the end of March, the LLDPE contract had fallen to 11010 yuan /tonne, whilst WTI had risen to $84/bbl.
There are probably three main causes for this decoupling:
Certainly, the Dalian futures trend matches the recent downturn in Asian HDPE margins. As the ICIS Polymer Margin report shows, integrated North East Asian (NEA) margins peaked at $464/t in February. Last week, they were back at £413/t. And standalone HDPE margins are now in negative territory.