China’s speculative surge slows

Dalian Jul09.jpg

Q2 saw an outburst of speculative frenzy all around the world, and in a wide variety of financial markets. China’s Dalian futures market saw LLDPE volume soar to 80 million tonnes – around 4 times total annual world demand. China’s easy money policy meant it was easy to borrow to speculate on a quick recovery.

But at some point, green shoots have to turn into real demand, if market rallies are to be sustained. And as the chart shows, Dalian’s volumes have since fallen away. June was down more than 50%, at 35 million tonnes. Pricing has also slipped, from 10, 285 yuan in April to 9,555 yuan last month – even though crude oil was rising from $50/bbl to $73/bbl.

Volumes are still very large by any normal standards, of course. As Becky Zhang points out in ICIS news, China’s total annual production is only 2.19 million tonnes. But in futures markets, the trend is your friend. Rising volume is always bullish. Today’s falling volume indicates that more questions are now being asked about likely levels of actual demand in H2.

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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