Dalian follows oil, interest rate, speculation

Dalian1 Sept10.pngThe 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.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. 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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