Asia Daily PP and PE Overview 14 Nov 2016

In China, futures trading activities were temporarily halted right after the first half of today’s session as January delivery contract for both PP and LLDPE plunged to hit the maximum daily loss allowed. PP futures settled at CNY8663/ton ($1087/ton without VAT), some CNY455/ton ($67/ton) lower than last week. LLDPE futures slip CNY515/ton ($76/ton) to close at CNY9875/ton ($1239/ton without VAT).

Domestic spot market therefore stalled. Traders offered CNY100-150/ton ($15-22/ton) discount on both PP and PE cargoes, however, buyers are just not confident enough to commit to fresh purchases. Sources said that if futures market continues to weaken in the coming days, very likely that spot offers might be down adjusted. This notion is strongly supported by converters, who are suffering from narrowed profit margins due to raising raw material prices in the past one month. A yarn manufacturer commented, “Our confidence in near term outlook got hit very hard this morning. What we plan to do now is just wait and see. Our local suppliers have down adjusted their offers by CNY150/ton ($22/ton), but we think this is not sufficient.”

Meanwhile, traders in the country carry more optimistic view saying that limited supply from both local and international suppliers would prevent spot PP and PE prices from any significant fall as an effect of sinking futures trade. One of the market source added, “We offered CNY100-150/ton ($15-22/ton) discounts, however trading activities are really slow this morning. We think spot market might witness price correction this week if futures trades do not revive. That is not very good news to traders. Yet, local inventories are still low, far from a point that suppliers have to commit to large price cut. Hence, we would monitor further development before any major decision is made.”

Import market sees no drastic movement with very limited number of new offers. Suppliers are also on the side-line to monitor further development before announcing new offers.

In Southeast Asia, market sentiment is rather quiet on the first trading day of the week, especially with ethylene cost based on CFR Southeast Asia term plunged to nine months low last Friday. It is interesting that ethylene continues to weaken amid healthy downstream derivatives including not only PE but also other petrochemical products such as PVC and styrene monomers. At the current ethylene prices, most derivatives are having positive margins, even HDPE film, which has been traded below the theoretical costs for an extended period of time.

There are only few international suppliers have opened new PE offers to the region, mostly at unchanged levels compared to last week, however, market respond is reported to be very poor. A trader offered Middle Eastern LLDPE film at $1200/ton CIF Vietnam, LC AS term said, “Customer are not showing any eager to make purchases. Many are not even interested in placing bid.”

A converter in the country received Thailand HDPE film at $1155/ton CIF Vietnam, LC AS term informed, “Our supplier has maintained this offer levels for three weeks in a row. Demand for our end product is not very strong compared to the same period last year while we can source more competitive cargoes in local ground, therefore we refrain from taking import material.”

Meanwhile, in Indonesia, another PE producer reacted to weakening local currency by implementing $35-35/ton hike on their offers. However, buyers remain holding wait and see stance claiming weak end product demand. A HDPE bag buyer said, “If taking ethylene cost into account, the recent price hike is really hard to accept. We are covered till end of December, therefore we are not rushing any new purchases.”

The regional PP market is facing similar condition though many international suppliers are putting high bet to the stable to firm trend given tightening supply from active plant shutdown this month. Meanwhile, there is little improvement in term of buying interest reported in regional local market. Indeed, Vietnamese players are describing the current domestic condition as frozen, in which comfortable supply make it very difficult for trader to achieve higher prices.

In Indonesia, converters are struggling to transfer the recent price hike into higher end product prices with a converter informed, “Our customer are resisting the latest offers from local producers. We think that the recent firming trend is not sustainable since downstream demand is not very supportive.”

In another news, the Indian government decided to demonetize the high-denomination banknotes earlier last week and it is reported that the process of notes exchange has been tardy, creating cash shortage in the market and hampered trading activities. The retail sector is badly affected and many end product orders have been postponed or worse, cancelled. Players here are not expecting this condition to improve in the next two months. The question is that would this encourage more export from the country in the near term?