SINGAPORE (ICIS)--China’s polyethylene (PE) market is being weighed down by availability of competitively priced cargoes from Iran amid tightened scrutiny of all transactions with the Middle Eastern country.
August shipments of low density PE (LDPE) film, high density PE (HDPE) film from Iran were traded at $1,020-1,050/tonne; while those of linear low density PE (LLDPE) film and HDPE injection grade of the same origin were heard done at below $1,000/tonne, they said, but these could not be confirmed with Iranian suppliers.
On 30 June, LDPE film was assessed at $1,080-1,130/tonne CFR (cost and freight) China; high-density PE (HDPE) film stood at $1,050-1,085/tonne CFR China; and LLDPE film was at $1,015-1,080/tonne, according to ICIS data.
Iranian PE suppliers have started offering much lower prices in China - their key export market - in May, following tweaks in Chinese regulations on foreign transactions.
China’s State Administration of Foreign Exchange on 1 May started requiring Chinese companies to submit customs clearance information to banks when making payments for foreign cargoes. It also reduced the minimum amount of foreign transactions subject to careful review of customs documents to $100,000 from $200,000 previously.
Payment issues have been hounding purchases of Iranian PE cargoes in China since March, with Chinese importers unable to procure supply via letter of credits (LCs), and, instead, had to use telegraphic transfer (TT), which is a huge capital burden to buyers, industry sources said.
Most market players expected China's imports of Iranian PE would continue to fall if payment issues could not be resolved.
In the first five months of 2017, China’s PE imports from Iran have declined by 15% year on year to 822,522 tonnes.
China PE import volumes from Iran
When transactions are done through LCs, traders can use only 10-20% security deposit to retrieve the full amount from the bank for 90 days, compared with TT that requires full payment on transactions.
With the changes in bank regulations in May, requiring closer scrutiny of Iran-related transactions, local distributors said that some banks in Shanghai, Shandong and Xiamen have even started to reject TT terms of payment.
Consequently, a number of Chinese PE traders decided not to go into supply contracts with the Iranian producers, leading to a strong build-up of inventories in the Middle Eastern country, since China is the biggest export market for Iranian PE.
Based on official data, Iranian PE accounted for 18.9% of China’s PE imports in 2016.
Stuck with high inventory and limited storage space in May, Iranian producers have had to resort to sending stocks to bonded warehouses in the UAE, Malaysia, and China, industry sources said.
Chinese distributors have remained reluctant to accept Iranian cargoes even at reduced contract prices.
Spot cargoes from Iranian suppliers are now priced lower by about yuan (CNY) 300-500/tonne compared with domestic Chinese material.
In the past, Chinese first-tier distributors purchase Iranian cargoes with a formula price, and then sell to Chinese buyers at the formula price, with commission plus a 90-day LC.
With the use of LCs taken out, the buyers are rejecting Iranian material since they do not have ample ready funds to pay for the cargoes.
“The transaction in Iranian cargoes [has] become more speculative,” an east China-based distributor said, adding that only those offered at significantly lower prices can stimulate buying interest.
China’s first-tier traders directly purchase cargoes from Iranian suppliers on TT payment basis. Before December 2016, second-tier Chinese traders could still use LCs to pay for the Iranian cargoes, and were providing enough funds to support the transactions of first-tier traders with Iranian producers.
Chinese buyers have generally been cautious about PE purchases since the start of the year due to narrowing margins in downstream production, and overall transactions could slow down further with the heightened payment issues in securing Iran cargoes.
Focus article by Angie Li
Additional reporting by Fanny Zhang
Picture: A container ship docks at the port of Qingdao in Shandong province, east China (Source: Sipa Asia/REX/Shutterstock)