Vietnam PP market floods with re-export cargoes from China

SINGAPORE (ICIS)–The Vietnamese polypropylene (PP) market is seeing a flood of re-export cargoes from China in an open arbitrage window, a situation likely to persist until the Chinese market is able to discharge climbing PP inventory levels.

Import PP prices in China have been softening in recent weeks, owing to climbing domestic inventory levels and a weakening futures market.

In contrast, import prices in southeast Asia remain buoyed by a tight supply of dutiable cargoes from the Middle East, owing to on-going turnarounds in the region including one at Borouge and at Petro Rabigh as well.

“The price gap between CFR (cost & freight) China and CFR Vietnam prices have been rapidly widening over the weeks. Not just the traders in China, even some Chinese converters are trying to re-export some of their cargoes in order to take advantage of firmer prices in Vietnam and make a profit,” a trader based in Vietnam said.

Most traders in Vietnam refrained from making purchases earlier in the week ended 24 February, preferring instead to wait for the release of fresh offers for March shipment cargoes from the Middle East, before taking a position.

By mid-week, several Middle Eastern producers had announced list prices for March shipments and sharply higher prices month on month.

Offers for March shipment cargoes of flat yarn grade emerged at $1,180/tonne CFR (cost & freight) Vietnam in the week, and were quickly shunned by buyers who deemed the prices too high to be workable.

According to ICIS data, import prices for flat yarn grade in Vietnam were last assessed at $1,120-1,140/tonne CFR Vietnam, tracking firmer offers and deals in the week ended 17 February.

“Deals in China are at $1,070/tonne CFR China at the highest. Taking that into consideration, there is no way any converter in Vietnam will buy import cargoes at $1,180/tonne CFR Vietnam, especially not with so many re-export cargoes from China in the market now,” a separate trader in the country said.

With the import offers from the Middle East more than $30/tonne over the asking prices of Chinese re-export cargoes, which were generally offered at around $1,140-1,150/tonne CFR Vietnam, buyers in Vietnam quickly turned to the re-export market to procure some cargoes.

According to market players, traders in China were able to make a healthy profit, even for deals concluded at around $1,110-1,120/tonne CFR Vietnam.

Furthermore, re-exports from China were for prompt shipment cargoes arriving in early March, which is more attractive for converters in the country who were seeking shorter lead times.

Fresh offers from the Middle East were largely for March shipment cargoes due to arrive in late March or early April.

In the near term, market players believe the Vietnamese market will likely continue to see re-export cargoes flowing in from China, up until the Chinese market is able to liquidate its current high inventory levels.

Chinese traders had previously procured large volumes of PP cargoes in December 2016, when the PP futures market was bullish, and market players say that it will take a few weeks for inventory levels in China to revert to normal levels.

Top photo: Container ships at Port of Qingdao, China (Source: Imaginechina/REX/Shutterstock)

Focus article by Leanne Tan