China’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.