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In China, futures prices on Dalian Commodity Exchange continue to move higher toward the end of the week. Contract number 1701 for both PP and PE settle three digits higher today with the support of the energy market. PP futures surged CNY133/ton ($20/ton) to reach CNY7317/ton ($938/ton without VAT). LLDPE futures gained CNY100/ton ($15/ton) to reach CNY8745/ton ($1121/ton without VAT).

Major local producers have announced October delivery offers for PP at unchanged levels compared to previous trading session, despite a large drop in domestic inventories this week. Meanwhile, PE offers firmed up CNY50-100/ton ($8-15/ton). Trading activities in local market is reported to be healthy as buyers rush for last minute purchases before the National Day holidays. A converter in Fujian said, “We have purchased a good quantity of material throughout this week and plan to make the final pre-holiday replenishment tomorrow. Buyers are increasingly sensitive toward the prices given squeezed margins from higher transportation costs.”

Domestic inventories at major producer’s warehouses have dropped significantly this week, which might cushion stable to firm trend in the first half of October. However, players expressed more bearish expectation for the second half of October claiming accumulated supply from restarted plants and new coal based units would pressure the market.

In the import market, a major Thailand producer cuts their HDPE and LLDPE film offers today by $10/ton, marking the third downward adjustment in a week due to weak buying interest. A trader informed, “Our principal supplier decided to lower their offers amid weak buying interest. Even at the latest prices, our customers are showing very limited interest. Many of buyers from East and Northern China have switch to Iranian HDPE film instead, due to competitive prices and this might pressure Asian suppliers.” Import PP to the country remain largely stable and buying interest for import material is relatively weaker compared to local cargoes.  

In Southeast Asia, there is some improvement in trading activities within the region with the support of firmer crude oil prices stemming from OPEC decision to cap production output. Though the effect on each market is not even, international sellers claimed seeing better sentiment. A trader sold Saudi Arabia homo-PP at $990/ton CIF Vietnam, LC AS term said, “We were not able to close any deal in the past one week, yet today we managed to sold out all the available quantity. Customers seem more confident to make purchases and we are requesting for additional cargoes from our principal supplier. With the latest development in the crude oil market, we think the polyolefins sector has more support to avoid a drastic reduction.”

Meanwhile, an international trader based in Indonesia also reported better trading activities with a source saying, “We have depleted most of our PP and PE cargoes at very thin profit margins. We think buyers here have totally disregarded the latest event in the energy market when negotiating for deals, instead, they keep pressing for lower offers.”

While the immediate effect of stronger energy market is visible to some extent, many players remain pessimistic about the medium term outlook. A market source commented, “It is too early to define the positive outlook purely based on the latest news in the energy market. Downstream market is very slow at the moment while supply for both PP and PE is rather comfortable. Market needs significant improvement in demand to sustain the firming trend.”

The regional PE market remains on the stable to softer track and buyers are still reluctant to make purchases due to uncertainties the market posed for the quarter four. A Vietnamese buyer said, “Our Saudi Arabia producer is very firm on LLDPE film parcels at $1180/ton without any further reduction. We plan to buy only a small quantity this time as local market is very weak and we make no profit re-selling at the current market levels.”

Demand in Thailand is also disappointing to any domestic traders mostly due to weak end product business and high raw material prices. Domestic LLDPE film is currently traded at THB47,500/ton ($1370/ton without VAT), which is well above the import market at the moment. This has created an opportunity for international supplier to penetrate this market.