China’s e-commerce platforms boom, to hit old plastics trade

SINGAPORE (ICIS)–The use of e-commerce trading platforms for spot trades in the domestic plastics market in China is gaining popularity with more players turning to online transactions to cut costs and reduce their reliance on intermediary brokers.

The monthly turnover of popular online spot trading platforms Zhaosuliao, Isuwang and Huasuhui for spot plastics such as polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC) are now hovering around yuan (CNY) 2bn each, and is set to surge in the near term.

The potential for growth for such platforms is huge as their current transaction levels are small compared to China’s  chemical distribution business roughly estimated at CNY1,400bn, according to market players.

Guangzhou-based Baisu Electronic Commerce, the operator of plastics business-to-business (B2B) e-commerce platform Zhaosuliao, recently announced that it has won $36m in funding that it said will be used to improve its market position and accumulate transaction data on the plastics industry.

Zhaosuliao is part of a new wave of online platforms that are moving towards eliminating the need for commissions or brokering fees, and this has unhinged the way traders traditionally conduct business in the country.

“Traders’ margins are already very slim, the online mode further squeezes our living conditions. We may be driven out of the market in the end,” said a Guangdong-based PE and PP trader.

The transparency of online platforms are also turning some participants away but online B2B platforms are dishing out incentives such as the removal of brokering fees and discounts to attract traders.

For example, Isuwang in mid-August offered subsidies on logistics for deals that were done on its platform.

The prevailing view among market players is that these online platforms will eventually replace physical trades, especially the smaller ones.

However, traders said that they are concerned that e-commerce platforms will erode their businesses in the near future.

“Traders are generally worried on [the] credibility of those online suppliers… [as] they may one day switch to become a trader instead of a broker,” a trader said.

“Online mode will be hard to succeed because it’s difficult to change our habits, we feel it’s easy and convenient to do business on phone,” a Fujian-based trader said.

Moreover, online platforms are now deemed as not being to cope with the pace of price changes and inaccurately listing prices, he said.

“When a buyer comes, the seller will say sorry, that price is gone or that cargo was sold, the new price is changed to X – always higher than what you see on the web. So, trading online is inefficient and time consuming,” the trader added.

Plastics end-users such as the manufactures of toys, electronics and pipelines, are currently excluded in e-commerce trading platforms as online channels only support cash payment in advance instead of by credit terms that are only payable on a weekly or monthly basis.

“We don’t expect these platforms to help us in expanding business because we need to consider the suppliers’ credit,” a trader said, adding that other factors such as the prompt delivery of cargoes as well as storage and warehouse conditions need to be considered as well.

More plastics end-users will switch to online platforms if the platforms are able to support end-users financial requirement, and this may force traditional traders and distributors out of business, analysts said.

However, not all market players are sceptical towards online platforms.

Sinochem Plastics, a major plastic distributor, earlier this year set up its own online trading platform to move towards online transactions, a company source said.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

Focus article by Fanny Zhang