Asia Daily PP and PE Overview 05 Dec 2016

In China, futures prices on Dalian Commodity Exchange made an impressive come back with both PP and LLDPE contract hit the daily up-limit, settling at CNY415/ton ($60/ton) higher than the previous session. May delivery PP closed at CNY8875/ton ($1101/ton without VAT) and LLDPE closed at CNY9930/ton ($1232/ton without VAT).

Such bullish development in the futures market has stimulated the spot trading in a very positive way and opened the arbitrage window between the two trading grounds again. The number of deal concluded for both PP and PE in local market improve significantly at CNY100-150/ton ($15-22/ton) increased from last Friday. Players reported that cargoes takers are mostly traders, who are dealing with both spot and futures market.

Traders are expecting that manufacturers would soon making replenishment to build stock before going off for the long Lunar New Year holidays; however, this remains on the horizon. Domestic producers recently have stepped up effort to increase delivery efficiency, minimising disruption throughout all major national holidays, allowing manufacturers to maximise just in time system. A converter in Fujian informed, “Delivery is available three days before the Chinese New Year, therefore we have no plan to stock up material until late January. At the moment, we still meet our basic need from local market as we have some cargoes on hand.”

In the import market, there are very limited numbers of homo-PP offers. Prices at the $1000/ton mark become very scarce thanks to strong energy and futures values. A trader sold Indian homo-PP at $1010/ton at bonded warehouse based on LC AS term said, “We personally believed that the USA cargoes has formed the bottom prices this time and at the moment, market shall move above the $1000/ton threshold again. Most suppliers are not having inventories pressure, and this would open the way for firmer trend in the near term.”

In Southeast Asia, the general sentiment remains pretty calm on the first trading day of the week, yet surging energy values is gradually boosting buyer’s confidence about the near term outlook. There are more purchasing activities reported in Indonesia market today for homo-PP, however at large discount compared to last week. In fact, several deals for Vietnamese homo-PP are reported at $1080/ton CIF Indonesia, LC AS term, some $50/ton lower than earlier last week. A converter purchased the cargoes informed, “Our supplier refused to engage in any further discount and we think market might be nearing to the bottom at the current energy market, therefore we decided to replenish some quantity for our production needs.” Market sources informed not only Vietnamese homo-PP is softer in Indonesia, but most Southeast Asian origin cargoes, including Malaysian, Thailand and Philippines material. Players attributed such reduction to the persistent weak demand and the depreciation of Asian currencies against the US dollar, which theoretically makes export more competitive.

Meanwhile, there are very limited numbers of new homo-PP offers from Middle Eastern suppliers as most have either sold out or monitoring market movement before announcing fresh price list. Besides, Saudi’s Saudi Polymers is due to restart its 400,000 tons/year PP plant after 60 days maintenance shutdown. Southeast Asian players reported that the company has started to open offers for January shipment.

The PE market receives more offers than PP, mostly at stable level compared to last week. Regional buyers however regarded PE as having higher risk despite the lack of availability of LDPE film supply. A Vietnamese trader received Middle Eastern LLDPE film at $1180-1190/ton CIF Vietnam, LC AS term said, “The currency exchange rate is very unfavorable for us at the moment while domestic prices are unable to firm up. We placed bid for $30-40/ton lower. Our supplier does not seem to accept our bid and we might skip purchasing this time as risks are too high.”

In spite of the fact that ethylene costs are inching higher, downstream PE market appears to shoulder no less pressure from weak demand condition. The availability of USA and Indian PE cargoes at competitive prices in addition to the depreciation of most Southeast Asian currencies, buyers might continue to negotiate for better deals.