China’s PE bearish on yuan depreciation, blazing trade row with US

SINGAPORE (ICIS)–China’s polyethylene (PE) market is set for a free fall in prices after having spiraled downwards this week, amid a currency depreciation against the US dollar that would hurt imports.

In China, September linear low density polyethylene (LLDPE) futures lost 2.2% from 8 May to yuan (CNY) 8,000/tonne on 9 May and the slump to below the CNY8,000/tonne-mark suggested a bearish market while the US continues to hammer China with tariff hikes.

The September LLDPE futures, the most actively traded contract at the Dalian Commodity Exchange (DCE), had fallen by 3.7% from end-April levels.

ICIS data put LLDPE EXWH (ex-warehouse) price assessment in east China at CNY8,100-8,200/tonne on 9 May, down by 3.0% compared with last weekly assessments on 30 April.

The fragile PE market in Asia especially China entered a stage of accelerated decline this week because of intense trade tensions between Beijing and Washington, triggering panic across financial and commodity markets.

The US effectively hiked tariffs on $200bn worth of Chinese goods to 25% on Friday midday, with China vowing to retaliate, escalating the trade war between the two economic giants now on its 10th month.

Meanwhile, the Chinese PE market harbors grave concerns over the impact of exchange rate changes.

According to China Foreign Exchange Trading Center, the median exchange rate of the Chinese yuan currency RMB against the US dollar was CNY6.79 on 10 May, down by 247 basis points from 9 May, and the lowest level since 25 January.

“The yuan depreciation [is] a big bearish factor to the [PE] import market, which drives the import prices down,” one Chinese market participant evinced.

From the supply side, the impact from the tariffs would not pose a huge impact as China had already scaled back PE imports from the US; China is required to pay an extra 25% tariff for US high density polyethylene (HDPE) and LLDPE grade since last year.

On demand, the orders of plastic products are transferred to factories in southeast Asia in response to the US tariff hike last September.

China exported 37,636 plastic machines in 2018, a surge of 116% from 2017: around 80% of the exports headed to southeast Asia.

Source: China customs

The main reason for the dramatic increase in machine export in 2017 is mainly due to China’s ban policy of import waste plastics, which led to the relocation of some waste plastics processing factories in China to southeast Asia.

Source: China customs

Focus article by Angie Li

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