The past fortnight has confirmed the strong linkage between Dalian futures trading, and financial market speculation.
Dalian prices (red line) for linear low density polyethylene (LLDPE) rose steadily in early September, as traders bet on higher crude prices. They had gained RMB 600/t ($90) by last Wednesday.
But then rumours began flying that China's interest rates would be increased at the weekend, to help curb rising inflation. Prices immediately dropped RMB 305 ($45/t), as traders dived for cover, mirroring Thursday's 1.5% fall on the Shanghai stock market.
Dalian's trading volume (blue line), over 6 MT/day at this month's peaks, gives it major influence on physical market pricing. Yet, now the excitement has died down, it is clear that nothing much had changed in the fundamentals of the polyethylene market to justify either its earlier rise in prices, or the sudden fall.
It has become, as my fellow-blogger John Richardson noted recently, an Alice in Wonderland market where financial speculation rules.