Some important new petchem trends

To keep you updated on what we believe is happening in petrochemicals, here are some important recent trends:

*Futures markets in China are playing an increasingly important role in influencing pricing in polyolefins, methanol and PTA. Trading volume on the Dalian Commodity Exchange (watch out for Focus piece due out on ICIS today) for LLDPE has hugely increased this year. Traders are playing off micro movements in pricing, and it seems as if all the contradictory government signals on the Chinese economy could be affecting volatility. It would be interesting to also check the correlation between other futures exchanges, local stock markets and the DCE

*There’s lots of anecdotal evidence of higher trader physical inventories – the result of easy liquidity

*China polyolefin prices have, a result, of all the above, been higher than in the West. This has attracted increased imports (note the Jan-Feb trade figures). US ethane-based PE production is very competitive because of low natural gas prices relative to naphtha. This is forecast to remain so for the next 1-2 years

*In short, the China market across several chemicals and polymers has become even more speculative than usual

*This might not be true, but watch ICIS to see if rumours have been confirmed of a softening in pricing this week. This would be ahead of the fundamentals that pointed to a correction after June

*This could be followed by a broader fall in crude, equites and global chemicals prices.

*OECD and IEA latest figures point to even higher crude stocks and there are reports of land-based storage being so full that newly commissioned supertankers are being used for storage. The financial speculators seem to be keeping crude at around $50/bbl on the belief that the global economic recovery will arrive by Q2/Q3

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