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Demand Is The Thing

Business, China, Company Strategy
By John Richardson on 16-May-2012

By John Richardson

In the second of a series of three blog posts, we gauge the reaction of the market to last week’s sharp decline in polyolefin prices.

Yesterday, we focused on the Middle East. Today, we interview a source with a Western-headquartered global polyolefin producer.

He told us:

I have a dreadful feeling that this is a repeat of 2008. Back then, the Chinese didn’t buy for 4-5 weeks and everybody kept expecting them to, all of a sudden, return in big numbers.

“Of course, it didn’t happen and it is now 3-4 weeks since Chinese buying almost completely seized up.

“There is hardly any activity at all, just hand-to-mouth, and the traders are in no mood to take risks across all chemicals and polymers.

“For instance, I was talking to a chemicals trader the other week and he said he was going to sit on his hands, he was going to do nothing for three weeks, until the situation became clearer.

“But, as I said, I am worried that there is something fundamental, something very serious, indeed. Demand is the thing.

“When the markets were wonderful, I kept telling my bosses ‘watch out for the disappearance of the speculative element’. And that is happened now as traders close-down their activity, or, where they are active, are selling polyolefins to cover losses on property investments.

“I think price declines have another two months to run at least. I don’t buy the theory, put forward by some traders, that last week’s steep price reductions will bring buyers out of the woodwork.

“What would help the market if some of the naphtha crackers shut down. The South Koreans, however, are still running pretty hard – at around 80 percent. Sinopec should take the lead and shut down a cracker for a couple of months.

“Companies keep trying to put a brave face on things, but I feel that they know, in their heart of hearts, that something is really wrong but are not able, at the moment, to admit it.

“Low-density polyethylene (LDPE) is in a really bad way and I think that it will eventually fall to within $50//tonne of  linear-low density PE (LLDPE). This is the result of the arrival of lots of Iranian cargoes and the start-up, very soon, of a lot of new capacity.The new capacity comprise:

*QAPCO’s 300,000 tonne/year facility, which is due on-stream in Qatar by the end of May.

*Saudi Kayan Petrochemical Co’s 300,000 tonne/year plant, scheduled to start-up in Saudi Arabia in Q3.