Asia Daily PP and PE Overview 28 July 2016

In China, futures prices on Dalian Commodity Exchange regained its momentum toward the end of the week. Contract 1609 for September delivery jumped CNY307/ton ($46/ton) for PP and CNY420/ton ($63/ton) for LLDPE to settle at CNY8328/ton ($1069/ton without VAT) and CNY9175/ton ($1177/ton without VAT) respectively.

After three straight sessions of reducing, domestic spot offers also rebound CNY50-100/ton ($8-15/ton) today thanks to skyrocketed futures trading. Signs of improved local trading activities become clearer as converters in the agriculture sectors step up to prepare for the high demand season. Traders in Northern China reported satisfactory LLDPE film sales with as source added; “Domestic inventories constantly decline since beginning of the week and this could indicate a firmer trend in the coming week. Our customers in the agricultural film sector are showing strong interest in replenishing cargoes, and we hope this condition could sustain in the near term.”

Sales for homo-PP are no less exciting though there are reports that a large quantity of cargoes are being directed to futures market as traders leverage the arbitrage opportunity to maximise profits. Comparisons show spot homo-PP is traded at CNY220-280/ton ($33-42/ton) below futures market at the moment. “For such extensive attention putting on futures market, we are really concern about the sustainability of the current spot market trend. At the moment, sales improved visibly even after we lifted our offers by CNY100/ton ($15/ton),” a trader commented.

It is interesting that import homo-PP from Middle East to the country concluded at $990/ton level today, breaching below the $1000/ton threshold even with improved local demand at the background. Meanwhile, players in the import PE market are proceeding with purchases of LLDPE film cargoes with minor discount reported.

In Southeast Asia, market posses a strong sense of caution, which causes trading activities slower than usual. It appears that besides LLDPE film, sellers are facing difficulties in convincing buyers to accept the range of price hike for August delivery cargoes. A Middle Eastern producer therefore decided to step back on their PP and HDPE film prices to Vietnam by $30/ton compared to initial offers given earlier this week. A distributor offered on behalf of the producer informed, “Most of our regular customers are very reluctant to replenish material as they believed that falling energy values would generate addition pressure on the market in the near term. We received bid for homo-PP at as low as $1000/ton. Meanwhile, we have sold out our LLDPE film parcels since the quantity available is very limited.”

Suppliers offered other homo-PP origins have also reportedly reduced their prices to Vietnam in the face of lethargic buying interest. Indeed, Uzbekistan homo-PP sees $30/ton lower than last week to reach $1050/ton CIF Vietnam, LC AS term. A buyer said, “Our supplier is willing to give additional $30/ton discount on deal, totalling a drop of $60/ton week on week if we were to buy. With the current local market condition, we might wait for a little longer before decide on our purchases.”

The regional PE market is rather weak, especially for HDPE business, as converters are not showing eager to make replenishment amid mediocre end product demand. Indonesian players are seeing a decline in transaction in recent days and some HDPE and LLDPE film offers in distribution market are even more competitive than import cargoes. A market source explained, “HDPE bags converters are facing difficulties with end product business since the government implements charges on plastic bags used in modern retails. We are hearing news that authorities are discussing of imposing further charges on using plastic bags, which might influence end user demand behaviour.” At the meantime, sellers are hoping better market condition in the coming month, in line with the traditional peak season for the packaging industry.

Meanwhile, persistent supply tightness continues to hold LLDPE film under the limelight, in which regional market participants continue to anticipate further price hike for this grade in the near term despite weakening upstream costs. A buyer received offers for Saudi Arabia LLDPE film at $1240/ton said, “Very few other Middle Eastern maker offer LLDPE film cargoes recently due to lack of availability. However, we think prices might not witness any significant increases as buyers are not confident in making purchases at the upper end of the overall price range.”

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