China’s futures markets give mixed messages

Dalian Oct10.pngChina’s Dalian futures market has been attracting world headlines recently, with its status as China’s leading market for chemical futures being confirmed. As such, one would expect its pricing for the two major polymers traded, LLDPE (linear low density polyethylene) and PVC, to follow similar patterns.

But this seems not to be the case. The LLDPE contract has boomed recently, offering punters a chance to bet on the direction of oil prices in high volume. It traded 46 million tonnes last month, around twice total annual global output.

Yet PVC, a higher volume product globally, and in China, traded just 1/10th of this volume. And as the chart shows, its price (red line) actually fell last month, as the physical market failed to pass through higher oil prices (blue).

This highlights, of course, the more speculative nature of the LLDPE contract. Anyone using it as the basis for pricing physical product, therefore needs to keep a close eye on what happens next to crude oil prices.

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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